THE Finance Ministry is targeting a national inflation rate of 2% this year from last year’s 3.7%, as consumers adjust to the repeal of the goods and services tax and the forthcoming sales and services tax.

Last month’s core inflation rate, which excluded the impact of the zero-rated GST, declined to -0.2% from June’s 1.5%, the lowest on record.

The consumer price index, which is a gauge of inflation, rose 0.9% last month from a year prior, said the Statistics Department.

Bank Negara Malaysia said the decline in prices for goods and services brought down headline inflation to 0.8% in June from May’s 1.8%.

Finance Minister Lim Guan Eng, citing figures from RHB Research Institute, said the numbers showed just “how big the impact” of GST was, adding that a full-year inflation rate of 2% would be “good enough”.

“Whether that can be achieved, I don’t know. It depends on how SST’s impact is absorbed by the economy, and if there is profiteering. Inflation must always be positive, even without taxes,” he told reporters in Putrajaya today.

In a report published last month, RHB said it expected the country’s headline inflation to moderate to 1.9% for the year on lower transport costs following the government’s move to fix fuel prices.

The prices of goods, which have been subdued after GST was zero-rated on June 1, are expected to rise with the implementation of SST, with the sales tax to be set at either 5% or 10%, depending on the items. SST is due to start on Saturday.

Consumption will likely see a dip after SST comes into effect, with consumers expected to make bulk purchases at the tail end of the “tax holiday”.

However, analysts have said a drop in demand will likely flatten out over the long term as consumers adjust to new prices from the proposed scheme.

According to a Reuters poll last month, involving 10 economists, Bank Negara was expected to keep its key interest rate at 3.25% as inflation was not a threat.

Fitch Ratings said Malaysia’s gross domestic product growth was expected to slow to 5.2% this year and 4.8% next year, given its narrower revenue base.

It said the country’s average GDP growth for the five years to this year, however, would remain above peer medians. – August 30, 2018.