Day 2: A Day after the Oil Price Increase

As expected, consumer and investor sentiments took a hit with the early morning knee jerk effect of the Malaysian bourse. Seemed like it was more reactionary than precautionary as the dip was not as serious as I’ve anticipated although I’d still be weary of the rippling effect of yesterday’s oil price announcement for one can never know what other sudden announcement this government of ours will make next.

Also as expected were the numerous news coverage that were published today in our local newspapers as I observe some of these people using used mineral water bottles to show the difference between before and after the oil price adjustments.

I suppose the above image taken from the leading English daily (The Star) says it all. After all, a picture does paint a thousand words and I doubt one will require further explanation with the illustration above.

At this moment, I believe the oil price increase has yet to sink in for most people. Call me a pessimist for painting a negative picture but maybe someone out there can explain to me how an abrupt 40% increase (40.6% to be precise) in one of the most prized commodity can be a good thing not just for you and me but the nation as a whole. The keyword here is ABRUPT. Sure I am all for a free market but sending a shockwave like this is like playing Russian roulette with 16 million people for we will never know what kind of reaction it can or will generate.

Only time can tell.

As mentioned above, what was obvious today were the psychological reactions to the adjustment instead of physical ones. Of course there were already news of companies who are directly affected by the increase making contractionary statements of future expectations. Some of them have announced that there will be price increments of services while others fear the end of their hard-built businesses.

If we try and imagine this being the first layer of the ripple effect, it doesn’t take a genius to try and anticipate what other industries will be affected next. For example, with transportation taking the first hit, fast-moving consumer goods will definitely see an increment in price as well. This could possibly come some time next month when the dust have settled and counter-measures to minimize loses by these FMCG companies are well in place. The percentage of increase is anyone’s guess but I reckon the band could be anywhere from 15% to 30%.

Prices were already increasing even before the announcement and I cannot tell if it was more rumor-based or inflationary-based but one thing is for sure, we won’t see the end of this ascending trend anytime soon.

I wonder what Alan Greenspan would have done.

Anyway before I end today’s observation, 2 comments caught my attention:

1. A drastic abrupt increase such as this is truly unbelievable. How can the price of oil, which is intertwined with so many different and important industries be adjusted by a 40% increment while wages and standard of living stays the same?

2. High automobile import tax causing a double-blow in terms of owning a vehicle. If price of oil need to be adjusted, so should the fair price of a vehicle. You can read the complete comment in the article below.

Can we call this protecting protectionism? I’ll leave this thought for another day.

Goodnight.