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Overall inflation to inch up in August

Published on 24 Sep 2019.

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RAM Ratings expects Malaysia’s overall inflation rate to edge up to 1.5% in August, from the 1.4% charted in July. The marginally higher reading is underpinned by slightly greater inflationary pressure from the food component. Looking ahead, full-year inflation is projected to come in at 1.0% in 2019 (2018: 1.0%). 

While overall price growth was anaemic in 1H 2019 (0.2%), inflation is expected to stay elevated in the second half. This is driven by the low-base effect from the withdrawal of the GST last year and the eventual rollout of the targeted fuel price subsidy mechanism, which will raise retail fuel prices to market levels.

The spike in global oil prices - following the significant dent in Saudi Arabia’s running oil production capacity - is not envisaged to pose a significant inflationary threat to Malaysia’s overall inflation in the very short term, given the existing fuel price ceilings. "That said, some inflationary pressure will be felt from this if the targeted fuel price subsidy mechanism debuts this year. However, the extent of the impact will be moderated by the level of efficiency in managing the Saudi supply gap,” notes Kristina Fong, RAM’s head of research.

Meanwhile, it remains unclear if there will be a prolonged supply disruption, which may lift oil prices for an extended period. We envisage some impact on the trajectory of inflation if prices are still elevated when the targeted fuel price subsidy mechanism is introduced. In the event of a longer-than-anticipated supply gap and an October debut for the targeted fuel subsidies, full-year inflation could be up to 0.4 percentage points higher than our baseline estimate for 2019.

 

Analytical contact
Woon Khai Jhek, CFA
(603) 3385 2512
khaijhek@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: August 2019 CPI 24-Sep-2019 Economic Insight View PDF

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