KUALA LUMPUR (Sept 20): Ambank Group Research said it foresees some inflationary pressure in the month of September owing to the reintroduction of Sales & Service Tax.

In a note today, AmBank Group chief economist and head of research Dr Anthony Dass however said the upside is expected to be limited since around 5,443 items are being declared exempt compared to Goods and Services Tax with only 544 items were declared exempt

Dass said Malaysia headline inflation rose at the slowest pace by 0.2% year-on-year (y/y) in August bringing the year-to-date average to 1.3%y/y.

He said the three and half year low August inflation figure was due to (1) continued effects from the removal of GST in June; (2) “base” effect;(3) fading cost of transportation as the RON95, RON 97 and diesel rose slowly rose slowly by 3.8% y/y, 10.5% y/y, and 6.9% y/y,; (4) stronger ringgit based on y/y comparison, up 4.5% y/y in August though on m/m it fell by 1.1%; and (5) weak demand pull pressure.

On the outlook, Dass said how much prices will rise depends on how well both the manufacturers and service will be able to implement the changes as well as how much of the tax is passed on to consumers. 

“We reiterate our full year inflation average to be at 1.5%, with the high side at 1.8%.

“On that note, we expect Bank Negara Malaysia to maintain the current 3.25% Overnight Policy Rate,” he said.