July Headline Inflation Rate Forecast Inches Up 1.0 Pct - RAM

KUALA LUMPUR, Aug 23 (Bernama) -- RAM Rating Services Bhd (RAM Ratings) expects the headline inflation rate to inch up to 1.0 per cent in July 2018, underpinned by stronger inflationary pressure from the transport fuel component. In a statement Thursday, the ratings agency said the average price of RON95 petrol rose 12.4 per cent in July compared to 9.9 per cent in June, amid low-base effects. Moving forward, it said prices are expected to remain subdued with the zero-rating of the Goods and Service Tax (GST), limiting any further upside pressure against inflation, while the Sales and Services Tax (SST) was expected to exert some cost past-through. "Our initial assessment of the SST and its potential inflationary impact does not indicate any destabilisation of prices or consumption for now. "This is due to the SST's smaller share of products in the consumer price index basket and because it applies to manufacturers rather than the end-consumers,” it said. Furthermore, any destabilising effects from the SST should be contained by its single layer of taxation, the less restrictive administrative costs of implementation and proposed exemptions on raw materials, components and packaging for registered manufacturers. In view of the deflationary pressure from the change in the taxation system, coupled with lower fuel prices from the reinstatement of fuel subsidies and a persistently weak growth trajectory for food prices, overall inflation was expected to average 1.3 per cent this year, it said. “Given the lower core inflation and moderating gross domestic product growth of 4.9 per cent, there seems to be a downward bias for the Overnight Policy Rate (OPR) this year. “Nonetheless, the OPR is expected to stay put at 3.25 per cent throughout the rest of 2018 as lingering policy uncertainties and some macro risks may still pose a risk to capital outflows,” it said. RAM Ratings believed that monetary policy would play a bigger role because fiscal consolidation is perceived as a key trend going forward, hence, less scope for additional pump-priming. -- BERNAMA