KUALA LUMPUR: RAM Rating Services Bhd (RAM Ratings) has forecast that the country’s overall inflation would remain contained in 2018 despite upward pressure from the Sales and Services Tax (SST).
It said the overall inflation was predicted to average 1.3 per cent in 2018 from 3.7 per cent in 2017, largely due to the easing of food inflation, reinstatement of fuel subsidies and zero-rating of the Goods and Services Tax (GST).
“While some costs pass-through among firms are expected from the reintroduction of the SST in September, the potential inflationary impact appears limited relative to the GST, given the former’s smaller share of the consumer price index basket (at 38 per cent) compared to the latter’s (60 per cent),” it said.
RAM Ratings said headline inflation was expected to accelerate to 1.7 per cent to 2.5 per cent in 2019, 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,” it said in a statement.
Besides that, the 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 US dollar next year, could put higher pressure on inflation in 2019.
RAM Ratings expects Bank Negara Malaysia’s Overnight Policy Rate to remain unchanged at 3.25 per cent throughout this year and 2019 since there is the need to balance between capital outflows and risks to gross domestic product expansion.