KUALA LUMPUR: RAM Rating Services Bhd expects Malaysia’s headline inflation rate to increase slightly to 1.5 per cent in April against 1.3 per cent in March, mainly attributed to a reduction in the negative growth contribution of retail fuel.
In a statement yesterday, the rating agency said the average price of RON95 fuel fell only 0.3 per cent year-on-year (y-o-y) in April, compared with a 4.4 per cent, y-o-y, decline in March.
For 2018, headline inflation was forecast to come in at 2.3 per cent after charting 3.7 per cent in 2017, it said.
Head of Research Kristina Fong said there might be a downside risk to RAM’s projection following the new administration’s move to zero-rate the Goods and Services Tax (GST) effective June 1 and its proposed intention to maintain the retail fuel price at its current level.
“These two policies alone (assuming no changes throughout the second half of 2018) are conservatively estimated to reduce headline inflation by 0.7 percentage point.
“That said, the downward pressure could ease with future policy refinements, potentially towards a more targeted fuel subsidy, and depending on the scope of proposed changes to the tax system promised in the ruling Pakatan Harapan coalition’s election manifesto,” she said.
On the flipside, Fong said there might also be an upside risk from marginal demand-pull inflation, given that several of the government’s election promises were very supportive of private consumption.
RAM said Bank Negara Malaysia (BNM) had maintained the Overnight Policy Rate (OPR) at 3.25 per cent at its last Monetary Policy Committee meeting, which incidentally was held concurrently with the recent general election.
The rating agency said it would keep abreast of any developments in the policy direction of the new administration and its advisers in its crucial first 100 days. — Bernama