25/03/2026

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WEDNESDAY | MAR 25, 2026

Price increases loom as diesel shock squeezes SMEs

KUALA LUMPUR: Higher diesel costs are beginning to squeeze Malaysia’s SMEs, with industry players warning that price pressures could soon filter through to consumers despite economists downplaying any immediate inflation spike. Small and Medium Enterprises Association of Malaysia national president Datuk William Ng said the sharp increase in diesel prices of RM1.60 per litre within two weeks is already disrupting cash flow across the SME ecosystem, particularly in logistics and manufacturing. “Diesel is a key operational component; a 51% increase in fuel costs in such a short window will disrupt cash flow quite severely,” he said, adding that many SMEs fall into a “difficult middle ground” where they are not eligible for targeted subsidies despite being critical to supply chains. While businesses are not in a position to raise prices freely due to competitive pressures, Ng cautioned that the scale of the increase makes cost pass-through increasingly unavoidable. “We can expect SMEs to start passing the costs to consumers very soon. Logistics surcharges will drive gradual adjustments in goods prices,” he told SunBiz . Ng challenged the view that inflation will remain minimal, arguing that official data may not yet reflect real conditions on the ground. “Even if immediate inflation spikes are not yet visible as SMEs are already bracing for intense cost pressures over the next three to six months,” he said, noting that the impact will become clearer as older Ű BY DEEPALAKSHMI MANICKAM sunbiz@thesundaily.com KUALA LUMPUR: Foreign investors extended a five-week streak of net selling across eight Asian markets, with outflows totalling US$12.13 billion, according to MBSB Investment Bank Bhd. Indonesia was the only country to receive net foreign inflows, with Taiwan leading the net selling, MBSB said in its Fund Flow Report for the week ended March 20. Indonesia was the only market enjoying a net buying position, recording US$20.3 million (RM80 million) in net foreign inflows, as its central bank maintained the benchmark seven-day reverse repo rate at 4.75%, alongside the deposit facility at 3.75% and lending facility at 5.50%. “The decision was aimed at stabilising the Indonesian rupiah, which had depreciated to around 16,985 against the US dollar amid ongoing capital outflows. “At the same time, Bank Indonesia reiterated its commitment to keeping inflation within the 2.5%, approxi mately 1% target range, despite inflation rising to 4.76% year-on-year in February 2026,” the bank said. It said Taiwan extended its three week net foreign selling streak, recording US$5.64 billion in outflows,

o Industry players warn cost pressures could soon filter through to consumers despite muted inflation outlook

“When the prices of resources such as oil increase, firms will tend to raise prices to overcome production costs. This leads to cost-push in flation, along with imported inflation,” he said. He pointed out that transport and logistics will be the most affected sectors, with ripple effects extending across manufacturing and services. “The increase in transportation costs will have a negative impact on other production-related sectors and ultimately, products and services will experience higher price increases.” Nanthakumar also warned of second-round effects, noting that Malaysia’s heavy reliance on diesel powered transport, particularly heavy goods vehicles, leaves most sectors exposed. “Every economic sector may be affected, and we will soon face the consequences,” he said, adding that businesses have limited ability to absorb rising costs due to a lack of alternative energy options. On the demand side, consumers are expected to feel the strain as higher prices for essential goods

inventory is depleted and higher transport costs feed into production. For now, most SMEs are coping by absorbing costs, often at the expense of profitability. This has led to margin compression, reduced reinvestment and tighter operational strategies, including consolidating deliveries and avoiding low-margin contracts. In some sectors, particularly construction, specialised transport, logistics, and energy, costs account for up to 25% of operating expenses, meaning the recent hike could effectively wipe out annual net profit margins. Ng warned that without further policy support, businesses may soon face a stark choice between raising prices or shutting down, urging the government to expand diesel subsidy eligibility and introduce more gradual pricing mechanisms. From a macroeconomic pers pective, Prof Dr Nanthakumar Loganathan of Universiti Teknologi Malaysia said the situation reflects a classic case of cost-push inflation driven by global oil price volatility, exacerbated by geopolitical tensions. the largest in the region, due to the escalating West Asia conflict, which raised concerns over potential supply chain disruptions and a renewed surge in global energy prices. “While Taiwan’s direct exposure to the Strait of Hormuz remains limited (less than 20%), its high energy import dependency of 97-98%t leaves the economy sensitive to oil price volatility and imported inflation pressures,” it said. On Bursa Malaysia, foreign investors net sold for the second week in a row, recording RM168.3 million in net foreign outflows. “Foreign investors were net sellers on two out of four trading days during the week, with the largest outflow recorded on Thursday (-RM244.3 million), followed by Monday (- RM175.5 million), while the largest inflows were recorded on Tuesday (RM159.7 million), and Wednesday (RM91.8 million),” the report said. The top three sectors that recorded net foreign inflows were plantation (RM156.8 million), in dustrial products and services (RM90.7 million), and healthcare (RM61 million). Outflows were concentrated in financial services (-RM399.3 million), consumer products and services (-

From left: Ng, Nanthakumar and Mohd Afzanizam.

feed into prices, with the “balance of risk to inflation tilted on the upside”. Afzanizam said both businesses and consumers are likely to adopt a more cautious stance, focusing on conserving cash and cutting ex penditure, which could in turn weigh on economic growth. “The immediate priority for policymakers is to ensure the supply of essential items such as fuel and food remains secure, while ensuring the cost of living does not spike.”

erode purchasing power, particularly among low- and middle-income groups. “The main issue for Malaysian consumers is not their spending pattern, but the rising cost of essential goods,” he said, cautioning that while subsidies help, they may not be sustainable in the long run. Meanwhile, Dr Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat Malaysia Bhd, maintained that inflationary pressures should remain contained in the near term as long as fuel subsidies are retained. “For as long as the fuel subsidies are still in place, inflation should be fairly contained.” However, he acknowledged that rising logistics costs, particularly in sea and air transport, will eventually

He described the government’s current approach as pragmatic, maintaining subsidies while signal ling potential adjustments if pres sures persist, but stressed that clear communication will be key to avoiding panic among businesses and households. Total net foreign outflow of US$12b from eight Asian markets last week

View of a crude oil refinery in Kaohsiung, Taiwan, taken on Monday. Taiwan’s high energy import dependency leaves the economy sensitive to oil price volatility and imported inflation pressures. Taiwan recorded the largest net foreign outflow among eight markets for the week ended March 20, MBSB Investment said. – REUTERSPIC RM56.3 million), and construction (- RM46 million). Local institutions recorded a net inflow of RM332.8 million, marking a consecutive second week of net buying activities. Local retailers recorded net outflows of - RM164.6 million, reverting to net selling after the previous week of inflows. Average daily trading volume saw a broad-based decline: local retailers by -12.7%, local institutions -14.6%, while foreign investors saw an increase of 7%. – Bernama