RAM: Headline inflation to rise to 2.7 per cent in 2019

KUCHING: Malaysia’s 2019 headline inflation is projected to rise to 2.7 per cent, mainly driven by additional pressure from the switch to targeted fuel subsidies, continued spillover effects from the reintroduction of the Sales and Service Tax and low-base effects during the three-month zero-rated Goods and Services Tax period.

RAM Rating Services Bhd ( RAM Rat ings) said the inf lation projection for 2019 would sti ll depend on the implementation of the targeted fuel- subsidy mechanism in the second quarter next year as key detai ls of its implementation, such as the disbursement mechanism, were still scant.

The credit rating agency said another key risk to its forecast was the volatility of global crude oil prices as the pace of inf lation in 2019 would largely depend on how effective the Organisation of the Petroleum Exporting Countries- led supply cuts would be vis- à-vis supporting global crude oil prices.

“Based on our estimates, every US$ 5 move in the average price of Brent crude will alter headline inflation by approximately 0.3 percentage points in 2019, barring any second- round ef fects on prices,” said RAM Ratings head of research, Kristina Fong in a statement yesterday.

RAM Ratings said it expected Bank Negara Malaysia to maintain the overnight policy rate at 3.25 per cent in 2019, given the need to balance between capital outf low pressures and growth support.

“Although headline inflation is envisaged to accelerate next year, the pace of increase will still be rather nondescript as a trigger point, relative to the downside risks to growth from ongoing fiscal consolidation, volatile capital markets, USChina trade tensions and Brexit uncertainties,” added Fong.

Meanwhile, RAM Ratings said Malaysia’s headl ine inf lation rate eased to 0.3 per cent in November, from 0.6 per cent in the preceding month underpinned by dissipating low- base effects on retail fuel prices.

“The price of RON95 petrol fell 4.5 per cent year- on-year in November, as opposed to a 1.1 per cent increase in October.

“On ac c ount of low food inf l at ion and the def lationary pressure from the reinstatement of fuel subsidies through the rest of 2018, overall inf lation is anticipated to average 1.0 per cent in 2018, against 3.7 per cent in 2017,” it added.