KUALA LUMPUR: Malaysia’s headline inflation rate for May is expected to increase to 1.9 per cent from 1.4 per cent in April, primarily due to faster growth in retail fuel prices, said RAM Rating Services Bhd.
The increase in retail fuel inflation of 5.1 per cent in May, compared with a 0.3 per cent contraction in April, was for the most part attributable to a low base effect.
In May 2017, the average RON 95 fuel price was significantly lower at RM2.09/litre, down from April 2017’s RM2.21/litre.
However, in May, RON 95 prices have remained unchanged at RM2.20/litre since March and is expected to stay at this level onwards, amid the reinstatement of subsidies.
“As such, inflationary pressure from the retail fuel component is also anticipated to rise for the months of June and July, as the low base effect from a year ago increases,” the rating agency said in a statement today.
Head of Research, Kristina Fong said uncertainty remained over the overall inflation outlook for 2018 as more policy measures are being unveiled by the new administration, with the change in tax system from the Goods and Services Tax (GST) to Sales and Services Tax (SST), being the most pertinent to the full-year estimation.
She said while the move to zero-rate the GST effective June 1 is expected to reduce overall inflationary pressure, the reintroduction of the SST may to some extent, offset the deflationary impact of the former.
This is subject to the final tax rate and coverage when the SST regime is put in place in September.
“We will closely monitor the development of the regime to assess the expected full-year inflation rate for 2018.“Withholding the impact of the SST’s implementation for now until more definite details are available, full-year overall inflation is envisaged to average 1.6 per cent,” Fong said.
She added that RAM's expectation was premised on the reinstatement of fuel subsidies, lower prices amid the zero-rating of the GST and a persistently weak food price growth trajectory.