RAM: Malaysia's overall inflation to rise to 1.6% in June 2019

KUALA LUMPUR (July 22): RAM Rating Services Bhd is expecting Malaysia's overall inflation rate will escalate to 1.6% in June 2019, compared to 0.2% in May, due to the low base effect arising from the removal of the goods and services tax (GST) last year.

It pointed out that the inflation rate had slipped to 0.8% in June 2018 after the removal of the GST, from 1.8% in the preceding month.

"The accelerated inflation this June is expected to be underscored by a more broad-based set of drivers," the credit rating agency said in a statement today.

RAM had also revised its inflation projection for 2019 down to 1%, from the earlier 1.6%. It explained that inflationary pressure has been weaker than expected so far this year, particularly from the food component and the reintroduction of the sales and service tax (SST) last September.

Furthermore, it said the fact that the government has delayed the implementation of targeted fuel subsidies is also a key contributing factor to its downward revision.

"Based on our estimates, the fair market price will likely stay above the current price ceiling through the rest of this year," it added.

However, RAM clarified that the eventual impact of the targeted fuel subsidy scheme remains uncertain, as there has been no confirmation on either the commencement date, or whether the existing price ceiling will be maintained.

"Our sensitivity analysis indicates that for every one-month delay in the implementation of the scheme, headline inflation will change 0.05 percentage points from our base case," said RAM head of research Kristina Fong.

"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," she said.