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Inflation to stay benign in May ahead of expected uptick in June

Published on 25 Jun 2019.

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RAM Ratings expects the inflation rate to remain weak at 0.3% in May, only a tad higher than the 0.2% of April. The uptick is mainly on the back of low-base effects from 2018, along with some stimulus during the fasting month (which started on 6 May) in the lead-up to Hari Raya Aidilfitri. That said, such pressure should ease towards the second half of the month, when the Festive Season Price Control Scheme kicked in (21 May-19 June).

Inflation is envisioned to spike up in June, fuelled by the low-base effects from last year, when the inflation rate had plunged after the removal of the Goods and Services Tax. We anticipate more upward pressure in July, with the scheduled implementation of targeted fuel subsidies.

“So far this year, price pressures have been less severe than we initially expected, thus exerting some downward bias on our forecast of 1.6% for 2019. That said, the outlook on inflation will depend much on the eventual implementation and type of mechanism adopted vis-à-vis targeted fuel subsidies, which may alter inflationary pressures in 2H 2019,” highlights Kristina Fong, RAM’s head of research.

Our current forecast incorporates the “cash transfer” mode, with everyone paying the same price at the pump and fuel prices floated according to market rates. If the “fleet card” mechanism were to be adopted, this would reduce overall inflation by 0.1 percentage points. If the current price ceilings are not removed when the targeted subsidies take effect, this will cut headline inflation by approximately 0.4 percentage points. The uncertainty over the trajectory of global oil prices under the floating-rate system also poses a risk to our forecast, as every 10 sen/litre increase in the price of RON95 petrol will raise overall inflation by approximately 0.2 percentage points. 

 

Analytical contact
Woon Khai Jhek, CFA
(603) 3385 2512
kristina@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

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Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad



Publication Date Published Category
Economic Insight: May 2019 CPI 25-Jun-2019 Economic Insight View PDF

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