The Department of Statistics is expected to release the June inflation figure this Wednesday.
The rating agency said the higher inflation rate will be fuelled by the low-base effects arising from the removal of the Goods and Services Tax (GST) last year.
“The inflation rate had plunged to 0.8% in June 2018 after the removal of the GST, from 1.8% the preceding month. The accelerated inflation this June is expected to be underscored by a more broad-based set of drivers.”
However, RAM has revised its inflation projection for 2019 down to 1.0%, from the earlier 1.6%. It explained that year to date, inflationary pressure has been weaker than expected, particularly from the food component and the reintroduction of the Sales and Service Tax (SST) last September.
“The delayed implementation of targeted fuel subsidies, which would have elevated consumer fuel prices to market levels in 2Q 2019, represents another key contributing factor to our downward revision.”
“Based on our estimates, the fair market price will likely stay above the current price ceiling through the rest of this year. That said, the eventual impact from the targeted fuel subsidy scheme remains nebulous, with no confirmation on either the commencement date (the ministry concerned has indicated a year-end target) or whether the existing price ceiling will be maintained.”
RAM’s sensitivity analysis indicates that for every one-month delay in the implementation of the scheme, headline inflation will change 0.05 percentage points from its base case.
“In the event the current price ceilings are retained when the targeted subsidies take effect, headline inflation will come in at a lower 0.8% this year,” said its head of research Kristina Fong.
Source: The Sun Daily