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 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 perspective, 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.
“When the prices of resources such as oil increase, firms will tend to raise prices to overcome production costs. This leads to cost-push inflation, 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 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 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 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 expenditure, 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.”
He described the government’s current approach as pragmatic, maintaining subsidies while signalling potential adjustments if pressures persist, but stressed that clear communication will be key to avoiding panic among businesses and households.
