The jump in the headline rate of inflation in Malaysia last month to 1.5% y/y from 0.2% in May, is unlikely to trouble the central bank (BNM). The rise was due to the effects of the elimination of the Goods and Services Tax (GST) in June 2018 dropping out of the annual comparison. Looking ahead, we think inflation will stay low and stable over the coming months. We expect global oil prices to nudge slightly lower over the coming months, and given that oil prices rose sharply in the second half of last year, year-on-year fuel price inflation is set to remain negative. Meanwhile, weaker GDP growth should keep underlying price pressures under check. The central bank cut interest rates in May, and if inflation remains weak and growth continues to ease as we expect, further monetary loosening is likely. We have a rate cut pencilled in for BNM’s September meeting.
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