September inflation seen rising to 0.9%

PETALING JAYA: RAM Ratings expects ’s headline rate to pick up slightly to 0.9% in September against 0.2% in August following the reintroduction of the sales and services tax.

“There was a noticeable deflationary trend for discretionary goods in the three-month tax-free window, thereby creating moderate downward pressure on the headline number. We expect this trend to gradually reverse as vendors adjust to the new tax system,” said its head of research Kristina Fong in a statement today.

Having said that, some of the upward pressure is anticipated to be partly offset by the moderation in transport fuel inflation, which should also continue to ease through the rest of this year as low-base effects subside further.

The Department of Statistics is scheduled to release the September inflation data on Friday.

Overall inflation is estimated at 1.3% for 2018 compared with 3.7% in 2017, according to RAM Ratings.

For 2019, headline inflation is expected to accelerate to 1.7-2.5%, with the higher end of this 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,” noted RAM Ratings.

It said other possible upside pressure on inflation in 2019 include a potentially higher rate of cost pass-through by firms to consumers on account of higher costs of doing business and a slightly weaker ringgit against the next year.

The rating agency expects Bank Negara Malaysia to maintain the benchmark interest rate at 3.25% through 2018 and 2019, given the need to balance between capital outflows and risks to gross domestic product expansion.

“Although headline inflation is envisaged to accelerate from the benign level of 2018, the pace of increase is still rather nondescript as a trigger point, relative to the downside risks to growth from ongoing fiscal consolidation, volatile capital markets and rising trade tensions.”

Source: The Sun Daily

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