Inflation was likely kept in check by steady fuel prices and a higher base in the year-earlier period, offsetting higher food costs, economists in the survey said. (A woman shops for shoes at a mall in Kuala Lumpur, Malaysia February 7, 2018. - Reuters)
PETALING JAYA: Maybank IB Research has raised its 2018 and 2019 headline inflation rate forecasts to 1.0%-1.5% and 2.0-2.5% respectively.
The research outfit said on Thursday that both headline and core inflation rates in January-August 2018 were subdued at +1.3% y-o-y and +1.1% y-o-y respectively.
Given the year-to-date inflation rate, the end of “consumption tax holiday” with the implementation of Sales Tax and Services Tax (SST) on September 1, the increase in minimum wage to RM1,050 per month next year as well as the confirmation that the Government is going to change current “blanket” fuel subsidy to a targeted and quota-based system next year, it noted that it was raising the headline inflation rate forecasts for 2018 and 2019.
The initial impact of SST implementation on headline inflation is expected to be modest as businesses may partially absorb the tax, as exemplified by the cigarette price increase of between 1% to 4% despite the imposition of 10% Sales Tax.
Despite the above upward adjustments in headline inflation forecasts for 2018 and 2019, Maybank IB said they remain moderate relative to the +3.7% inflation rate in 2017.
In addition to moderate inflation rate, domestic economic growth is expected to be softer. It expects real GDP growth of +4.8% in both 2018 and 2019 (2017: +5.9%), as Bank Negara last month indicated that it expects this year’s real GDP growth to be around +5.0% versus its March 2018’s projection of between +5.5% and +6.0%.
The economic growth and inflation outlook supports Maybank IB view of no change in the central bank’s current Overnight Policy Rate (OPR) level of 3.25% until end-2019 after the +25bps hike at the Monetary Policy Committee (MPC) meeting on January 25.
To note, the central bank had kept the OPR unchanged at its MPC meeting on September 4-5 i.e. no change in OPR for the fourth successive meeting.
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