The government expects the inflation rate to drop to between 2.5 and 3.5 percent this year from the original forecast of between four and five per cent, Datuk Seri Najib Tun Razak said.

The prime minister said the projection, which took into account the implementation of the Goods and Services Tax (GST), was due to the plunge in crude oil prices by more than 50 percent due to the global supply surplus and falling demand.

“This means that Malaysian consumers will have more disposable income, and this will help in terms of their ability to make purchases with bigger value,” he said in an interview on the TV3′s ‘Soal Jawab’ programme here tonight.

In a special address on current economic developments and the government’s financial position yesterday, Najib, who is also finance minister, said the additional disposable income would roughly RM7.5 billion due to lower retail prices of petrol and diesel by 35 and 30 sen per litre, respectively, recently.

“Assuming that consumers spend 40 per cent of the total, this will increase private consumption by RM3 billion,” he said.

Earlier this year, the new retail price for RON95 was reduced to RM1.91 per litre from RM2.26 per litre while the RON97 price decreased to RM2.11 per litre from RM2.46 per litre, and the diesel price was lowered to RM1.93 per litre from RM2.23.

The GST implementation in April is the best time to do so due to the relatively low inflation, the prime minister said, adding that the GST at six per cent would yield additional revenue to the country following a sharp fall in the prices of oil, one of Malaysia’s financial resources.

“The GST will generate more revenue on the basis of a broad-based fundamentals, a progressive income tax. So, this proved that the government’s decision is appropriate,” he said.

On the failure of traders to lower the prices of goods despite plunging oil prices, Najib said there was a need for a more effective enforcement system and wiser consumers.

Consumers should make good purchasing decisions by not buying from shops that have failed to lower their prices and continued to charge exorbitant prices, he said, adding that they should shop where they could get fair prices.