-  The electricity tariff will be increased by about 15% for Peninsular Malaysia, and by about 17% for Sabah and Labuan next year, said Energy, Green Technology and Water Minister Datuk Dr Maximus Johnity Ongkili. The new rates will take effect on Jan 1, 2014.

-  The average electricity tariff in Peninsular Malaysia will increase from the current average rate of 33.54 sen/kWh to 38.53 sen/kWh.

-  For Sabah and Labuan, the average tariff will surge from current average rate of 29.52 sen per kWh to 34.52 sen per kWh. Meanwhile, rates in Sarawak will not be affected.

-  The revision in the electricity tariff was last seen in June 2011. Then, the average rate in Peninsula Malaysia was raised by 2.23 sen (or +7.1%) from 31.31 sen/kWh.

-  Under the new electricity tariff structure, domestic gas price will be raised from the current subsidised rate of RM13.70 per mmbtu to RM15.20 per mmbtu.

-  The adjustment in the electricity tariff will push the cost component of Housing, Water, Electricity, Gas and Other Fuels higher for 2014. The Housing, Water, Electricity, Gas and Other Fuels component contributes 22.59% to overall inflation.

-  Our estimates suggest that the Consumer Price Index (CPI) component of Housing, Water, Electricity, Gas and Other Fuels will likely pose a increase of 2.4% YoY in 2014 as compared to +1.6% as at YTD October 2013.

-  In terms of overall prices though, we do not expect the electricity tariff increase to have a significant impact on the headline inflation for 2014. The electricity and gas components account for 2.88% and 0.46% of total CPI respectively.

-  As a recap, Malaysia’s CPI advanced to +2.8% YoY in October. On a YTD basis, inflation had increased by a modest 1.9%.

-  We are keeping our full-year CPI projections intact at this juncture. Inflation is expected to advance by 2.2% and 3.0% in 2013 and 2014 respectively.

-  Going forward, we do envisage further price rationalisation ahead considering that the budget allocation for total subsidies has been reduced to RM39.4bil (or -15.6% YoY) for 2014. 

Source: AmeSecurities