Inflation to moderate in August: RAM

PETALING JAYA: Malaysia’s headline inflation rate is expected to moderate to 0.3% in August 2018 compared with 0.9% in the previous month, underpinned by weaker contribution from the transport fuel component, according to RAM Ratings.

“The average price of RON95 petrol only ascended 3.9% in August amid dissipating low-base effects. Prices had averaged RM2.12 per litre in August 2017 compared to RM1.96 in July 2017,” RAM said in a statement.

The rating agency said the component’s growth should also ease through the rest of this year as low-base effects subside further. For the full year, it said overall inflation is envisaged to come in at 1.3% compared with 3.7% in 2017.

In addition, RAM said the outlook on food inflation also still appears subdued for the rest of the year, with the zero-rating of the goods and services tax (GST), coupled with limited impact from the sales and service tax (SST).

While the SST is expected to elevate food inflation following the respective lows of 0.8% and 0.7% in June and July during the threemonth tax holiday, RAM opined that the impact is not expected to be as widespread.

“Under the new SST regime, the majority of basic food items are either exempted or taxed at a lower rate of 5%. The number of eateries subject to the 6% service tax are also lower under the current SST regime due to the higher taxable threshold of RM1.5 million, compared to RM500,000 under the GST regime.

“These changes are anticipated to limit the upward pressure on overall food inflation,” it added.

Meanwhile, RAM said it expects Bank Negara Malaysia (BNM) to maintain the overnight policy rate (OPR) at 3.25% at its final monetary policy committee (MPC) meeting for the year in November, given the need to balance between capital outflows and GDP growth risks.

RAM said the central bank’s neutral tone in its recent MPC statement also suggests that the rate is consistent with its current policy stance and any prevalent risk will need to be assessed further.

“It will be a tough call for BNM at future meetings as the risks weigh on its OPR decision in opposite ways. There are still uncertainties which are difficult to fully account for in terms of impact,” RAM’s head of research Kristina Fong noted.