KUALA LUMPUR (Sept 24): Malaysia’s overall inflation rate is expected to edge up to 1.5% year-on-year (y-o-y) in August, from the 1.4% y-o-y charted in July, says RAM Rating Services Bhd.

The local rating agency said the marginally higher reading is underpinned by slightly greater inflationary pressure from the food component.

Looking ahead, full-year inflation is projected to come in at 1% in 2019 – similar to that seen last year.

"While overall price growth was anaemic in the first half of 2019 (0.2%), inflation is expected to stay elevated in the second half. This is driven by the low-base effect from the withdrawal of the goods and services tax last year and the eventual rollout of the targeted fuel price subsidy mechanism, which will raise retail fuel prices to market levels," said RAM in a statement today.

It added that the spike in global oil prices, following the significant dent in Saudi Arabia’s running oil production capacity, is not envisaged to pose a significant inflationary threat to Malaysia’s overall inflation in the very short term, given the existing fuel price ceilings.

"That said, some inflationary pressure will be felt from this if the targeted fuel price subsidy mechanism debuts this year. However, the extent of the impact will be moderated by the level of efficiency in managing the Saudi supply gap,” said RAM head of research Kristina Fong.

RAM said it remains unclear if there will be a prolonged supply disruption, which may lift oil prices for an extended period.

"We envisage some impact on the trajectory of inflation if prices are still elevated when the targeted fuel price subsidy mechanism
is introduced.

"In the event of a longer-than-anticipated supply gap and an October debut for the targeted fuel subsidies, full-year inflation could be up to 0.4 percentage points higher than our baseline estimate for 2019," it added.