KUALA LUMPUR (Sep 18): Malaysia’s headline inflation rate is likely to have moderated to 0.3% in August (July: 0.9%), underpinned by weaker contribution from the transport fuel component, said RAM Rating Services Bhd.

“The average price of RON95 petrol only ascended 3.9% in August (July: 12.4%) amid dissipating low-base effects. Prices had averaged RM2.12 per litre in August 2017 compared with RM1.96 in July 2017,” RAM said in a statement today.

It said the component’s growth should also ease through the rest of this year as low-base effects subside further.

For the full year, overall inflation is envisaged to come in at 1.3% compared with 3.7% last year.

On the outlook on food inflation, RAM said it still appears subdued for the rest of 2018, with the zero-rating of the Goods and Services Tax (GST) coupled with limited impact from the Sales and Service Tax (SST).

“While the SST is expected to elevate food inflation following the respective lows of 0.8% and 0.7% in June and July during the three-month tax holiday, the impact is not expected to be as widespread. Under the new SST regime, the majority of basic food items are either exempted or taxed at a lower rate of 5%.

“The number of eateries subject to the 6% service tax are also lower under the current SST regime due to the higher taxable threshold of RM1.5 million, compared with RM500,000 under the GST regime. These changes are anticipated to limit the upward pressure on overall food inflation,” it said.

The rating agency expects Bank Negara Malaysia to maintain the overnight policy rate at 3.25% at its final monetary policy committee meeting for the year in November, given the need to balance between capital outflows and GDP growth risks.

“It will be a tough call for BNM at future meetings as the risks weigh on its OPR decision in opposite ways. There are still uncertainties which are difficult to fully account for in terms of impact,” said RAM’s head of research Kristina Fong.