NST Business
KUALA LUMPUR: Malaysia’s headline inflation is expected to taper off for the remaining two months of the year, analysts said.
The country’s Consumer Price Index (CPI) rose at a marginally faster pace of 0.6 per cent year-on-year in October (September: 0.3 per cent), in line with the consensus estimate.
Kenanga Investment Bank Bhd expects inflation to remain below one per cent in the remaining months of 2018, as the upward pressure arising from weak ringgit and seasonal monsoon period would be partially offset by fuel subsidies, particularly the continued fixation of RON95 price at RM2.20, and high base effect from the previous year.
Kenanga IB said the October figure came below house estimate of 0.9 per cent. On month-on-month basis, the index grew by 0.2 per cent (September: 0.4 per cent).
Meanwhile, the core inflation expanded to 0.4 per cent year-on-year from September’s 0.3 per cent, it added.
“The inflation growth trend has remained subdued since June, in part due to the tax holiday period following the abolishment of the Goods & Services Tax (GST), the reintroduction of the fuel subsidy and the high base effect.
“The impact emanating from the reimplementation of the Sales & Services Tax (SST) from September remained muted, thus far,” it said in a report today.
Kenanga said the higher CPI was underpinned by the rise in housing, food and non-alcoholic beverages, restaurant, education and transport indices.
“Largest increase in CPI growth, relative to the previous month, was recorded by the food and non-alcoholic beverages, rising as much as 77 basis points to 1.2 per cent year-on-year, its highest since June.
The advent of monsoon season was the main reason disrupting food supply as reflected in the food sub-group index of vegetables and fish and seafood.
On a year-to-date basis, the CPI has moderated to 1.1 per cent compared to 3.9 per cent in the same period a year ago.
“As such, we expect the whole year CPI growth to likely hit the lower end of our forecast range of 1.0-1.5 per cent (2017: 3.7 per cent),” it said.
Kenanga IB said for 2019, floating of domestic fuel prices in 2Q19 and low base effect arising from the tax holiday period in June to August 2018 may exert upward pressure to inflation.
“However, an expected slower global growth and possibly lower crude oil prices would put a cap on inflation upside. Hence, CPI is projected to only increase, albeit slightly, within a range of 1.0-1.5 per cent in 2019,” it said.
Meanwhile, Kenanga IB said given the potentially subdued inflationary trend coupled with the expectation of moderating global trade and growth, it expects Bank Negara Malaysia to hold the overnight policy rate steady at 3.25 per cent.
“Despite that regional central banks, namely Indonesia and the Philippines have raised interest rates and Thailand has leaned towards tightening, we believe Bank Negara will continue its accommodative monetary policy stance and ensure the OPR level remains supportive of growth,” it said.