COMMENT | Will targeted diesel subsidies work?

COMMENT | Indications are that the diesel targeted subsidies announced Sunday have not been fully thought through yet, with a headline-grabbing over 50 percent rise in diesel prices to RM3.35 per litre at the pump, an RM1.20 jump from just RM2.15 previously.

That figure of over 50 percent alone screams “inflation” loud and clear although a careful examination indicates it may not be all that because of inbuilt mechanisms already in place. But inflation is also about expectations - if enough people expect prices to rise, they will.

It would have been more prudent for a gradual price increase, say a couple of sen every week for just over a year to mitigate this large jump overnight and thereby reduce inflationary expectations.

Subsidies are a double-edged sword, cutting both ways.