Inflation drops to 0.8% in June, car loans at record high

The headline inflation is the lowest in 40 months following the zero-rating of GST


Inflation has dropped to the lowest level in more than three years and private vehicle loans have reached an all-time high as consumers flood car sales rooms during the zero-tax period.

The country’s headline inflation dropped to 0.8% in June, the lowest level in 40 months, as prices for 11 out of the 12 categories measured in the Consumer Price Index (CPI) registered a drop.

The lower CPI was expected after the government axed the unpopular Goods and Services Tax (GST) in June to zero.

“The lower headline inflation, which stood at 1.8% in May, was mainly due to the reduction in prices of goods and services following the zero-rating of GST,” Bank Negara Malaysia (BNM) said in a statement.

The prices of fuel have also been capped, removing fluctuations and adding more money for consumers to spend.

But significant spending is seen in the automotive market despite net financing inched at 6.9% in June compared to 6.8% in May.

“The growth of household loan applications and approvals for the purchase of passenger cars increased significantly in June to 15.3% and 21.9% respectively, mainly due to higher demand for financing during the tax holiday period,” said the central bank.

The June 2018 banking statistics published by the central bank showed record highs for private car purchases.

Loans applied for private car purchases rose to RM8.7 billion during the GST-free month of June this year, the highest level since RM11 billion recorded in July 2013.

Total loans approved by the country’s banking system for private car purchases reached RM5.2 billion for June 2018, estimated to be a record high as the central bank’s data only showed figures up to 2006.

The banking system approved total loans of RM35.1 billion, while the country’s total lending from the banking system stood at RM1.62 trillion, RM12 billion more than the month before.

The loan figures corresponded with the bullish automotive sector. Vehicles sales jumped 50% in June compared to a month before and reached the highest level this year.

The removal of GST effective June 1, has made prices of big-ticket items like vehicles cheaper by 6%.

Consumers have been flocking to showrooms to conclude their purchases. Some carmakers have stopped taking bookings for selected models due to pricing uncertainties in September when the Sales and Services Tax will be reintroduced.

The total industry volume (TIV) for June this year rose to 64,502 units from 42,983 vehicles recorded in May 2018. It was the first time vehicle sales breached the 60,000 level this year. In addition, it is the first time that the TIV crossed 64,000 units in the last 30 months.

But outflows continue to haunt the country. The domestic financial markets continued to face a non-residents outflow in June amid the intensified trade war concerns and the anticipation of normalisation in the US monetary policy, said BNM.

BNM said the local benchmark index, FTSE Bursa Malaysia KLCI, declined by 2.8% in June, while the ringgit depreciated by 0.5% against the US dollar.

“However, the domestic bond market was supported by strong demand by domestic institutional investors as the Malaysian Government Securities yields declined by between 0.4 and 8.8 basis points in June,” it said.

The central bank said the level of asset quality of the domestic banking system remained healthy as the net impaired loans ratio and the total provisions to total loans ratio remained unchanged at 1% and 1.5% respectively.