The Effects of Fuel Price Fluctuation on Household Income in Malaysia

The removal of fuel subsidy has affected many Malaysians due to the increase in the cost of living and hence causing insufficient income to cover monthly expenditures. This study investigates the total, direct and indirect effects of fuel price fluctuations on household income in Malaysia due to subsidy removal. The data from the Household Expenditure Survey (HES) conducted by the Department of Statistics Malaysia was used in this study. The households were differentiated into three income groups, namely Top 20% (T20), Middle 40% (M40), and Bottom 40% (B40) which included the years 2009/ 2010, 2014, and 2016. Then, the partial equilibrium approach was used to investigate all effects. The effects were investigated for different incomes and ethnic groups. This study found that group B40 experienced the greatest indirect and total effect of fuel price fluctuations due to the subsidy removal. For the direct effect, there was not much difference seen among all income groups after the subsidy removal. Furthermore, the effects were found to be lower after the fuel subsidy removal for all ethnic groups. Thus, the findings could help the government in examining the policy of subsidy removal in order to successfully help the poor. Hence, this could improve the quality of life, especially for the income groups B40 and M40.