Milder inflation in September due to high-base effects from SST implementation last year

Published on 22 Oct 2019.

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RAM Ratings expects Malaysia’s overall inflation rate to ease to 1.2% in September, down from the 1.5% charted in August. The anticipated moderation is primarily on account of high-base effects following the reintroduction of the Sales and Service Tax (SST) last year, which triggered most individual CPI components to trend higher. 

For the full year, RAM’s inflation forecast has been revised downwards to 0.7%, from the earlier projected 1.0%. This follows recent announcements that the targeted fuel subsidy scheme, which will raise consumer fuel prices to market levels, will only start in January 2020. Given that our previous projection had been premised on a rollout in 4Q 2019, inflation contribution from the transport component to overall inflation this year will likely be lower than envisaged.

“Moving forward, headline inflation is projected to accelerate to 1.9% in 2020, mainly driven by additional pressure from the switch to targeted fuel subsidies, along with the absence of consumption tax effects that had weighed on prices in early 2019,” explains Kristina Fong, RAM’s head of research. The price of RON95 will gradually move to market levels upon the commencement of the targeted fuel subsidy programme in January 2020. This will introduce notable upward pressure on overall inflation. Nonetheless, consumers in East Malaysia will keep enjoying the existing fuel price ceilings, thereby negating some of the inflationary pressure from Peninsular Malaysia on overall inflation. The transport component is estimated to raise overall inflation by 1.0 percentage point - a significant proportion of the expected 1.2 percentage point increase in 2020.

All said, the price trajectory of Brent crude remains a key risk factor in our inflation forecast for 2020. Based on our estimates, every USD5 move in the average price of Brent crude will alter headline inflation by approximately 0.3 percentage points next year, barring any second-round effects on prices.


Analytical contact
Woon Khai Jhek, CFA
(603) 3385 2512

Media contact
Padthma Subbiah
(603) 3385 2577


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© Copyright 2019 by RAM Rating Services Berhad

Publication Date Published Category
Economic Insight: September 2019 CPI 22-Oct-2019 Economic Insight View PDF