RAM Ratings expects lower inflation in October

The short-term trend of inflation is envisaged to remain status quo until year-end


MALAYSIA’S overall inflation rate is expected to ease to 0.9% in October from 1.1% in September on a smaller contribution from the food component, RAM Rating Services Bhd (RAM Ratings) said.

Food inflation is predicted to decelerate against the high-base effects from October last year, when it spiked up to 1.2% from 0.5% the month before.

“Looking ahead, the short-term trend of inflation is envisaged to remain status quo amid the continuation of the fuel price ceiling until year-end,” RAM Ratings said in a statement yesterday.

The rating agency also noted that the continued decline of the Producer Price Index indicates a smaller scope for cost pass-through to consumers over the next few months.

Therefore, headline inflation is expected to come in at 0.7% this year before accelerating to 1.9% in 2020.

“The uptick in inflation next year will be mainly driven by additional pressure from the switch to targeted fuel subsidies,” the firm added.

Headline inflation, which came in at 1% for 2018, is anticipated to be “low” in 2019, and higher, though modest, in 2020, Bank Negara Malaysia said recently at the release of Malaysia’s third-quarter GDP.

In its 2018 annual report, the central bank said headline inflation is expected to average between 0.7% and 1.7% in 2019, with moderate upward pressure coming from the lapse in the combined impact of consumption tax policy changes, coupled with higher minimum wages and higher electricity tariff surcharge for businesses.

Another potential upside risk to RAM Ratings’ estimate for 2020 is the slated increase in water tariffs next year, once the new Tariff Setting Mechanism comes into effect.

Details on the mechanism are still limited at the moment, with the Water, Land and Natural Resources Ministry quoting a broad range of between seven and 70 sen per 1,000 litres for the potential rise.

There has also been no mention of when the new rates will be implemented.

“Although water supply only accounts for a 0.9% weight in the Consumer Price Index basket, the extent to which it will augment overall inflation in 2020 will largely depend on the magnitude of the actual tariff hike and the timing of its rollout,” RAM Ratings head of research Kristina Fong said.