New Electricity Tariff Leads to Higher Inflationary Pressure in July

Malaysia’s headline inflation rose from 0.8% yoy in June to 0.9% in July, which was in line with market expectations. However, the headline inflation remained relatively low due to the tax holiday period, as a result of the zerorating of goods and services tax (GST), which began in June 2018 and likely to end in August this year. GST will be replaced by the reinstatement of sales and services tax (SST) from September 2018. The underlying core inflation, which excludes volatile and administered price items, fell into negative territory for the first time, at -0.2% yoy in July (0.1% in June).

Cost of housing, water, electricity, gas & other fuels rose from 1.5% yoy in June to 2% in July, where cost of electricity increased by 3.5% mom, reflecting the new electricity tariff effective from 1st July 2018. Cost of transport also rose for the fourth consecutive months to 6.7% yoy in July (5.5% in June), partly due to the lower base effect of retail pump price in July last year, where the price of RON95 averaged at RM1.96/litre against RM2.20/litre in July this year.

Besides the two factors on headline inflation, i.e higher electricity and retail pump prices, other prices continued to improve in July, mainly due to tax holiday and the higher base effect from last year. Cost of furnishing & household equipment fell from -1% yoy in June to -1.7% in July, underpinned by improvement in prices of household appliances. Cost of restaurant & hotels improved from 1.3% in June to 1% in July, attributed to lower prices of accommodation services. Cost of food & non-alcoholic beverages improved by 0.7% yoy in July (0.8% in June), mainly due to lower prices of food away from home category.

Source: Affin Hwang Research - 27 Aug 2018