PETALING JAYA: Malaysia’s headline inflation is expected to ease to 0.3% in November from 0.6% in October due to the dissipating low-base effects on retail fuel prices, according to RAM Ratings.
This is attributable to the 4.5% year-on-year fall in the price of the RON 95 petrol in the month under review compared with the increase of 1.1% seen in the preceding month.
As for the full year, inflation rate is expected to average at 1.0% as against the 3.7% seen in 2017 on account of low food inflation and deflationary pressure from the reinstatement of fuel subsidies.
Meanwhile, going into 2019, headline inflation is projected to accelerate to 2.7%, mainly driven by additional pressure from the switch to targeted fuel subsidies, along with the expected continued spillover effects from the reintroduction of the Sales and Service Tax and low-base effects during the three-month zero-Goods and Services Tax period.
In saying this, RAM Ratings head of research, Kristina Fong said the 2019 inflation projection will still depend on the implementation of the targeted fuel-subsidy mechanism in the second quarter of 2019 for which key details such as the exact date and the disbursement mechanism of its implementation are still scant.
Fong added that another key risk to the forecast is the volatility of global crude oil prices, as the pace of inflation in 2019 will largely depend on how effective the OPEC-led supply cuts will impact global crude oil prices.
“Based on our estimates, every US$5 move in the average price of Brent crude will alter headline inflation by approximately 0.3 percentage points in 2019, barring any second-round effects on prices,” she said in a statement.
“We expect Bank Negara Malaysia to maintain the OPR(Overnight Policy Rate) at 3.25% in 2019, given the need to balance between capital outflow pressures and growth support. Although headline inflation is envisaged to accelerate next year, the pace of increase will still be rather nondescript as a trigger point, relative to the downside risks to growth from ongoing fiscal consolidation, volatile capital markets, US-China trade tensions and Brexit uncertainties,” she added