Stable prices of goods, services expected
KUALA LUMPUR: Consumers are set to benefit from the lower economic growth environment when other components, such as exports and public expenditure, show declining activity.
This is because consumers’ purchasing power might be intact given the moderate headline inflation or stable prices of goods and services expected this year.
Bank Negara Malaysia (BNM) Governor Datuk Nor Shamsiah Mohd Yunus expected the headline inflation to stay moderate this year, with the core inflation to remain stable.
The core inflation is a measure of underlying inflation that excludes the estimated direct impact of the zero-rating of the Goods and Services Tax (GST).
The labour market was expected to remain positive, with stable employment and wage growth, she said.
Bank Islam Malaysia chief economist Dr Mohd Afzanizam Abdul Rashid said moderate inflation meant intact purchasing power for consumers.
However, he said, people must save and invest their money to earn extra income over and above the inflation rate.
“If a person just keeps their money in a closet, their cash will be eroded by inflation. So, one has to take action to preserve their wealth and purchasing power.”
MIDF Amanah Investment Bank chief economist Dr Kamaruddin Mohd Nor said inflation was expected to moderate due to policy related measures, such as the tax holiday and fuel subsidy.
“Nevertheless, upward cost pressure coming from higher fuel inflation could offset the decline. We expect full-year inflation to be less than two per cent for 2018.”
The prices of goods and services declined in the second quarter, hand in hand with higher consumer spending that was at its highest level since pre-GST.
BNM said the lower inflation in the second quarter mainly reflected the zero-rating of GST.
It said the drop in prices was broad-based, as most of the 90 per cent of items that were taxed under GST showed price drops of between 0.06 per cent and 6.75 per cent.
The core inflation, excluding the impact of the zerorating of GST, also became moderate during the quarter to 1.5 per cent from 1.9 per cent in the first quarter of this year, BNM said.
“This was mainly due to lower inflation in the ‘food away from home’ sub-category, contributed by the stronger ringgit exchange rate in the first half of this year, relative to the second half of last year.”
On the Sales and Services Tax (SST), which will be implemented soon, Nor Shamsiah said the tax impact on the country’s inflation would be much smaller than GST.
“Fifty-two per cent of items in the Consumer Price Index basket were subjected to GST, but the old SST regime would only apply to 28 per cent of the items.
“That means the inflation impact will not be as great as what we saw under the GST regime.
“However, it will depend on the behaviour of traders in terms of pricing strategy and how they may pass cost to consumers.”