KUALA LUMPUR, Nov 19 — Malaysia’s headline inflation is expected to come in at a benign 0.7 per cent in 2019 before accelerating to 1.9 per cent in 2020, said RAM Ratings today.

It said the continued decline of producer price index indicated a smaller scope for cost pass-through to customers over the next few months.

The uptick in inflation next year will be mainly driven by additional pressure from the switch to targeted fuel subsidies, said the rating agency, adding that another potential upside risk to its estimate for 2020 is the slated increase in water tariffs next year, once the new Tariff Setting Mechanism (TSM) comes into effect.

RAM Ratings said details were still scant at the moment, with the Water, Land and Natural Resources Ministry quoting a broad range for the potential rise with no mention of when these new rates will take effect.

““Although water supply only accounts for a 0.9 per cent weight in the Consumer Price Index basket, the extent to which it will augment overall inflation in 2020 will largely depend on the magnitude of the actual tariff hike and the timing of its rollout,” said the rating agency’s head of research Kristina Fong in a statement today.

Meanwhile, Malaysia’s overall inflation rate to ease to 0.9 per cent in October 2019 from 1.1 per cent in September 2019, underpinned by a smaller contribution from the food component.

RAM Ratings said food inflation was envisaged to decelerate against the high-base effects from October 2018, when it had spiked up to 1.2 per cent from 0.5 per cent the month before.

Short-term trend of inflation is envisaged to remain status quo amid the continuation of the fuel price ceiling until year-end, it added.

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