‘INFLATION TO STAY CONTAINED’
Expectation due to easing of food cost, fuel subsidies reinstatement and zero-rated GST, says RAM Ratings
RAM Rating Services Bhd has forecast the country’s overall inflation to remain contained this year, despite upward pressure from the Sales and Services Tax (SST).
It said the overall inflation was predicted to average 1.3 per cent this year from 3.7 per cent last year, largely due to the easing of food inflation, reinstatement of fuel subsidies and the zero-rating of the Goods and Services Tax (GST).
“While some firms are expected to pass through costs from the reintroduction of the SST last month, the potential inflationary impact appears limited relative to the GST, given the former’s smaller share of the consumer price index basket (at 38 per cent), compared with the latter’s (60 per cent),” it said in a statement.
RAM Ratings said headline inflation was expected to accelerate to 1.7 to 2.5 per cent next year, with the higher end of the range primarily hinging on the shift to a targeted fuel-subsidy mechanism.
“Should fuel subsidies become more targeted, the higher market price of fuel will feature more prominently in headline inflation, thereby elevating the inflationary impact as opposed to the current blanket fuel-subsidy system.”
Besides, the potentially higher rate of cost pass-through from companies to consumers on account of higher costs of doing business and a slightly weaker ringgit against the US dollar next year may put higher pressure on inflation next year.
RAM Ratings expects Bank Negara Malaysia’s Overnight Policy Rate to remain unchanged at 3.25 per cent this year and next year since there is a need to balance between capital outflows and risks to gross domestic product expansion.