RAM: Oct inflation to ease to 0.9% on lower food inflation

19 Nov 2019 / 14:09 H.

PETALING JAYA: Malaysia’s overall inflation rate is expected to ease to 0.9% in October on the back of smaller contribution from the food component, according to RAM Ratings.

“This is because food inflation is envisaged to decelerate against the high-base effects from October 2018, when it had spiked up to 1.2% from 0.5% the month before,” the rating agency said in a report.

The Department of Statistics is scheduled to release the latest inflation data tomorrow.

Looking ahead, RAM said the short-term inflation is envisaged to remain status quo amid the continuation of the fuel price ceiling until year-end .

It highlighted that the continued decline of the producer price index also indicates a smaller scope for cost pass-through to consumers over the next few months.

“As such, headline inflation is expected to come in at a benign 0.7% this year, before accelerating to 1.9% in 2020.”

Meanwhile, RAM said the uptick in inflation next year will be mainly driven by additional pressure from the switch to targeted fuel subsidies.

“That said, another potential upside risk to our estimate for 2020 is the slated increase in water tariffs next year, once the new Tariff Setting Mechanism comes into effect. Details are still scant at the moment, with the Ministry of Water, Land and Natural Resources quoting a broad range for the potential rise (i.e. 7-70 sen per 1,000 litres). There has also been no mention of when these new rates will take effect.”

RAM head of research Kristina Fong said although water supply only accounts for a 0.9% weight in the CPI 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.

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