Speaking to FMT, Firdaos said currently, there was a mismatch of expectations from the public every time the government announced fuel prices each month, as the public would compare fuel pump prices to global oil prices.
“People do not compare the government’s announcement with the average monthly world crude oil price, but rather, with its trend in that particular month,” said Firdaos, a Fellow in Economics at the Institute of Strategic and International Studies Malaysia (Isis).
“So when the domestic price of petrol increases and the people notice that the monthly crude oil prices are on a downtrend, they will be unhappy. Average numbers distort trends”.
Firdaos was commenting on reactions by people on social media to the latest increase in petrol and diesel prices by 15 sen.
Many netizens lamented that when fuel prices went down, the decrease was minimal, but when it went up, the increase was substantial.
Firdaos said with oil prices being very unpredictable, the government’s method of calculating based on a monthly average price was also risky.
“Should the global price of crude oil skyrocket and the government is calculating the pump prices based on the previous month’s average, the government may end up subsidising fuel prices.”
Second Finance Minister Johari Abdul Ghani had earlier revealed that Putrajaya subsidised fuel prices for November because the average price for October was higher than that the government had set for retail purchase and the government did not want to increase the price too much.
Firdaos said the best way forward was for petrol prices to follow daily prices, similar to what was being done in developed countries.
He acknowledged that this might be a big transition, requiring the government, businesses and the public to make the various adjustments, but one that was inevitable.
He said consumers, too, must be ready to make the transition to daily prices, even though this meant possibly paying slightly higher prices when daily oil prices went up.
“The fallacy that we are not exposed to high prices must be dispelled,” he said.
However, the upside, Firdaos explained, was that daily prices meant consumers would benefit from fairer pricing, as petrol stations would have to compete on pricing factors instead of following prices set by the government.
“If petrol stations were to follow market rates, they will have to set their own profit margins and this will give consumers a choice as different stations will set different prices to attract customers.”
However, he noted, such a policy might be easier to implement in urban areas, but not in rural or remote areas.