Published on 13 Aug 2019.
RAM Ratings expects Malaysia’s overall inflation rate for July to continue trending at the more elevated level first charted in June (+1.3 percentage points m-o-m to 1.5%). July’s inflation rate is expected to come in marginally higher at 1.6%, underpinned by an anticipated uptick in food inflation.
Looking ahead, full-year inflation is projected to come in at 1.0% in 2019, unchanged from the full-year average charted in 2018. Overall inflation has stayed benign at 0.2% in 1H 2019 (1H 2018: 1.6%; 2H 2018: 0.4%), mainly due to a lower transport fuel price ceiling (instituted in January 2019) as well as the broad-based fall in prices following the removal of the Goods and Services Tax (GST) in June 2018. “That said, we generally expect 2H 2019 headline inflation to trend higher than 1H 2019. This is largely attributable to the low-base effect from the withdrawal of the GST last year, as well as the anticipated implementation of the targeted fuel subsidy mechanism later this year,” notes Kristina Fong, RAM’s Head of Research.
Low-base effects from the GST’s withdrawal last year had already caused inflation rate to surge to 1.5% in June (May: 0.2%). This higher trend is envisaged to prevail for some time yet going forward. Overall inflation is expected to experience another round of acceleration once the targeted fuel subsidy is in place, which would raise consumer fuel prices to market levels. Based on our estimates, the implementation of the scheme will lift 2019’s overall inflation by 0.2 percentage points relative to the current blanket subsidy mechanism.
Woon Khai Jhek, CFA
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