Malaysian headline inflation eases in August, BNM likely to keep rates on hold for sometime

Malaysian headline consumer price inflation eased in August. On a year-on-year basis, the consumer price index dropped to 0.2 percent from July’s 0.9 percent. The fall was driven by the impacts of the Good and Services Tax (GST) removal from June, and favourable base effects, particularly in the transport component.

Sequentially, the CPI index rose 0.2 percent. There was barely any sequential rise in the component price indexes in the month, barring the quarterly adjustment to the housing and utilities index. RON 95 and diesel prices stayed the same, but price for RON 97 led to the fuel CPI component rising by 0.2 percent. The government’s policy to steady domestic fuel prices has shielded consumers from the effect of higher global oil prices.

Malaysian inflation is likely to accelerate in September as the reintroduction of SST might see some rises in price, noted ANZ in a research report. The degree of the rise might depend on how rapidly manufacturers and service providers can implement the changes and how much of the tax is passed on to consumers.

“We see inflation remaining benign through the rest of 2018 and well below 2.0 percent y/y through the first half of 2019. Given that the low inflation is transitory due to GST removal and base effects, we expect BNM to look through it and keep the OPR unchanged at 3.25 percent for a while”, added ANZ.