High base effect, fuel subsidies to cap Malaysian inflation in end-2018: UOB economist

OCTOBER 26, 2018 - 4:51 PM

MALAYSIA’S inflation levels should stay below 1 per cent in the last few months of 2018, said United Overseas Bank senior economist Julia Goh on Friday (Oct 26), after headline inflation growth came in at 0.3 per cent year on year for September.

She held to a full-year inflation estimate of 1.2 per cent for 2018, as well as 2 per cent for 2019.

End-2018 inflation will be capped by high base effects from the previous year, as well as fuel subsidies, said Ms Goh.

This is even though prices are expected to face upward pressures from year-end festive buying, as well as the seasonal monsoon - projected to disrupt domestic supply of produce and seafood - and a softening ringgit, which will hit dairy and fruit imports.

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Ms Goh noted that “inflation stayed on the backburner amid a high year-ago base effect” despite the re-introduction of a sales and services tax (SST) on Sept 1.

The new tax affects fewer items in the Consumer Price Index basket - used as an indicator of inflation - than the previous goods and services tax. “Benign food and transport price inflation counter-balanced the rise in prices of SST-affected components, including household equipment, communications, recreation services, and restaurants and hotels,” she said of the September figures.

“Higher year-ago base effects helped to ease the gains in the transport segment, pulling transport price inflation down to 0.3 per cent year on year last month, from 2.1 per cent year on year in August.

“With food items mostly exempted from the SST, consumer prices for food at home dropped further by 0.7 per cent in September . . . However, price inflation for food away from home increased to 2.6 per cent year on year, from 1.7 per cent year on year (in August).”

She added that there is a two-month transition period for hypermarkets and retail chains to adjust their prices: “Hypermarkets and retail chains nationwide can set new prices for their goods starting Nov 15 when the transition period to sell off old and existing stock ends. The government will only finalise the new list of goods exempted from SST by year-end.”