Malaysia: Inflationary pressures fade in June on the zero-rating of the Goods and Services Tax

Consumer prices dropped 1.24% month-on-month in June, sharply contrasting May’s 0.17% increase. The print reflected a broad-based reduction in prices as all categories recorded lower prices than the previous month, with notable decreases in prices for food and non-alcoholic beverages; housing, water, electricity, gas and other fuels; and transport.

Inflation fell to 0.8% in June from May’s 1.8%, marking the lowest reading since February 2015. Following the technical withdrawal of the Goods and Services Tax on 1 June, many items became cheaper. Simultaneously, store discounts due to the festival season of Eid al-Fitr provided further downward pressure on prices in June. Annual average inflation came in at 2.6%, down from May’s 2.8%, while core inflation—which excludes fresh food and administered prices of goods and services—dropped to 0.1% in June from 1.5% in May.

Malaysia Inflation Forecast

Last month, FocusEconomics Consensus Forecast panelists expected inflation to average 2.0% in 2018, which was down 0.3 percentage points from the previous month’s projection. This downward revision was likely linked to the new government’s decision to reduce the Goods and Services Tax (GST) to 0%. For 2019, the panel saw inflation averaging 2.5%. Panelists’ inflation forecasts are likely to be revised down even further next month in light of June’s inflation reading.