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Malaysian headline inflation decelerates in June, BNM likely to maintain ‘neutral’ tone in July

Malaysian headline inflation slowed in the month of June on a year-on-year basis. The consumer price inflation eased to 0.8 percent from May’s 1.8 percent. On a sequential basis, headline inflation decreased 1.2 percent as retailers passed on the benefits of the zero-rating of the GST to consumers.

The zero-rating of the GST starting 1 June led to lower prices in the month. Core rate of inflation dropped to 0.1 percent year-on-year from 1.5 percent previously. In spite of all the major CPI components recording sequential declines, prices have not been lowered by as much as was factored in, noted ANZ in a research report. The pass-through effect was solid in clothing, household goods, and communications. But it was not as evident in healthcare, education, and the hospitality segments.

The food and beverages category recorded a fall of 1 percent sequentially. Fuel prices were up 0.3 percent, reflecting the rise in the prices of RON97 grade fuel while the prices of RON95 grade fuel and diesel continued to be unchanged. But a low base saw fuel prices rise 10.2 percent year-on-year in the month.

The moderation in inflation is believed to be “transitory” and might reverse when the Sales and Service Tax (SST) is reinstated later in the year. CPI inflation has averaged 1.6 percent year-on-year over the first half of 2018 and is expected to fall further before rebounding towards the end of the year, stated ANZ.

“Given low inflation and uncertainty over the global trade outlook, we expect BNM to maintain the ‘neutral’ tone it assumed in the 11 July monetary policy statement and remain on hold for the rest of the year. The central bank will stay accommodative, but is unlikely to take a dovish stance and jeopardise the relative resilience of the ringgit”, added ANZ.

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