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RAM: Malaysia’s overall inflation to rise to 1.6% in June 2019

KUALA LUMPUR: Due to the low base effect arising from the removal of the goods and services tax (GST) last year, RAM Rating Services Bhd expects Malaysia’s overall inflation rate will rise to 1/6% in June 2019, as compared to 0.2% in May.

It was reported that the inflation rate had slid down to 0.8% in June 2018 after the removal of the GST, from 1/8% in the preceding month.

The company also revised its inflation projection for 2019 down to 1%, from the earlier 1.6%. The report described how the inflationary pressure has been weaker than expected so far this year, particularly from the food component and the reintroduction of the sales and service tax (SST) last September.

It also said that the delayed implementation of the government on the targeted fuel subsidies became a key contributing factor to its downward revision.

“Based on our estimates, the fair market price will likely stay above the current price ceiling through the rest of this year,” it added.

However, RAM also clarified that the eventual impact of the targeted fuel subsidy scheme remains uncertain. This is due to no confirmation on either the commencement date, or whether the existing price ceiling with be maintained.

“Our sensitivity analysis indicates that for every one-month delay in the implementation of the scheme, headline inflation will change 0.05 percentage points from our base case,” said RAM head of research Kristina Fong.

“In the event the current price ceilings are retained when the targeted subsidies take effect, headline inflation will come in at a lower 0.8% this year,” she said.

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