Inflation to continue tapering down in coming months

KUALA LUMPUR: Malaysia’s inflation has been projected by analysts to continue tapering down in the upcoming months.

According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), this was due to high base effects besides other significant events such as zero-rated Goods and Services Tax (GST), tax holiday period until Sales and Services Tax (SST) implementation in September 2018 and stable retail fuel price which will reduce business cost.

“In upcoming months, we opine cost inflationary pressure to stay low amid tax-holiday period. However, rising global commodity prices could induce pressure to the estimate,” it said.

MIDF Research recapped in its monthly economic review for August 2018 that Malaysia’s gross domestic product (GDP) growth, which expanded by 4.5 per cent year on year (y-o-y) in the second quarter of 2018 (2Q18), was below the research arm’s forecast of 4.9 per cent y-o-y and market expectations of 5.2 per cent y-o-y.

The research arm noted that it was the weakest growth in sixquarters and less than previous year’s average of 5.4 per cent.

“Among others, domestic demand contributes about 4.3 per cent of the total growth during the quarter. From the supply side, services and manufacturing sectors contribute 3.5 per cent and 1.2 per cent respectively.”

MIDF Research had opined that the slowdown in GDP growth was in tandem with moderating performances of industrial production, manufacturing sales, distributive trade and external trade during the quarter.

“Moderating inflationary pressure, strengthening domestic demand and accommodative economic policies as well as strong exports growth are expected to be major drivers for GDP performance in the second half of 2018 (2H18).”

In upcoming months, MIDF Research foresees Malaysia’s exports to remain positive on the back of zero-rated GST, tax holiday period and stable retail fuel price.

“Nevertheless, protectionism and trade tension remain a concern to the economy.”

Moving forward, the research arm also foresees industrial production index (IPI) performances to expand at steady pace for 2H18 amid escalating trade tension, moderating inflation and supportive policy changes for businesses such as tax-holiday and stable retail fuel prices.