By MARK RAO / Pic By ISMAIL CHE RUS

Malaysia’s June inflation rate dropped to the lowest level in 40 months, the first month the prices of thousands of products and services were exempted from paying the highly unpopular consumption tax, the Goods and Services Tax (GST).

The Consumer Price Index (CPI), which measures the prices of a basket of products and services, came in at 0.8% year-on-year (YoY), a level that was last seen in February 2015. The June figure pushed the average inflation rate for the first six months of the year (1H19) to 1.6%.

The Department of Statistics Malaysia said the low June CPI number was contributed by the zero-rated GST, retail discounts and price controls during the Hari Raya Aidilfitri festival.

“These events had indirectly affected the prices of goods and services in the market,” the department said yesterday.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the average inflation of 1.6% for the January-June 2018 period was significantly lower than the 4% recorded in 1H17.

The figure, he said, was also lower than the central bank’s forecast, and this provides space for easing of monetary policy.

“The inflation rate is currently hove- ring below Bank Negara Malaysia’s (BNM) projection of between 2% and 3%, suggesting there is some space for policy easing,” Mohd Afzanizam told The Malaysian Reserve.

BNM maintained the Overnight Policy Rate at 3.25% last week, citing inflation would be low or in the negative until 1H19.

Global central banks traditionally would increase interest rates to curb rising inflation or to prep up the country’s currency.

Inflation had risen in the last few years with consumers blaming the GST as the cause for the increase. The new government had practically abolish the GST when it announced a zero rate for the consumption tax, removing the 6% levy on hundreds of thousands of products and services.

But the market expects prices to rise with the introduction of the Sales and Services Tax (SST) in September this year.

Finance Minister Lim Guan Eng said the SST will be re-introduced on Sept 1, which will see a tax of 10% imposed on sales of goods and 6% for services.

Mohd Afzanizam said it is unclear how the inflation rate will react to the SST implementation as various factors determine the prices of goods.

“These may include demand and supply dynamics, the exchange rate and, more importantly, unfair business practices such as profiteering (that may occur post-SST),” he said.

“There is an urgent need for the authorities to inspect and do the necessary investigations to ensure profiteering activities would be eliminated as businesses could use the SST as an excuse for excessive increases in prices.”

Malaysia’s June CPI saw notable YoY declines in the communications, and clothing and footwear groups at 3.9% and 3.1% respectively.

Miscellaneous goods and services, and recreation and culture services fell 2.6% and 2.5% respectively over the same period, while food and non-alcoholic beverages saw a 0.8% growth.

The food and non-alcoholic beverages index accounted for 29.5% of Malaysia’s CPI in June and was higher on the increases in fish and seafood, fruits and rice, bread and other cereals sub-categories. This was offset by vegetable inflation decreasing 2.6% YoY, followed by meat (-2.3%), milk and eggs (-1%) and oils and fats (-0.2%).

The transport category saw the steepest increase at 5.5% YoY, followed by housing, water, electricity, gas and other fuels, which was up 1.5%.

The Statistics Department said the transport CPI was higher mainly due to the 10.2% inflation jump in fuels and lubricants for personal transport equipment.

“The increase in the transport group was due to higher fuel prices in June this year compared to the same period of the previous year, where the price of RON95 was RM2.20, RON97 at RM2.58 and diesel at RM2.18,” it said.

In June 2017, RON95 was priced at RM2, RON97 at RM2.27 and diesel at RM1.92.

On a month-to-month basis, Malaysia’s June CPI decreased 1.2% due to the declines across all main groups, namely miscellaneous goods and services; communications; recreation and culture services; clothing and footwear; furnishings, household equipment and routine household maintenance; and food and non-alcoholic beverages.