KUALA LUMPUR: Inflation moved up slightly in November mostly due to alcohol and tobacco following the hike in excise duties.
The Consumer Price Index posted a 3.0 per cent per cent year-on-year growth from 2.8 per cent in October, according to Statistics Department.
Dr Chua Hak Bin of Bank of America Merrill Lynch said the pass through from the 10 per cent subsidised fuel price hike in early October has been limited.
“We think moderating domestic demand and falling global commodity prices - in particular, oil - are helping to keep inflation in check. “
He felt the plunge in global oil prices should filter into inflation readings more prominently in the coming months, given the recent change in the retail fuel pricing mechanism.
Malaysia switched to a managed float pricing system for RON95 petrol and diesel (vs. a government-fixed price previously) on 1 December.
The prices of RON97 and RON95 petrol fell by 9 sen and 4 sen for December, to RM2.46 and RM2.26, respectively.
“Falling oil prices will also cushion the impact of the 6 per cent Goods and Services Tax (GST), which is scheduled to be implemented on April 1, 2015.”
The research house is forecasting inflation to average around 4.2 per cent next year, versus 3.1 per cent in 2014.
“Risks are tilted toward the downside, especially if oil prices continue to slip.”
Affin Hwang Capital Research economist Alan Tan expects inflation to remain manageable at around 3.2 per cent in 2014.
“We believe crude oil prices will stay low for some time reflecting the excess supply in the world oil market.”
However, going into 2015, the country’s headline inflation rate is expected to increase to a range of between 4.0-4.5 per cent, due to the introduction of GST.
Chua does not expect Bank Negara Malaysia to tighten its monetary policy next year given “expectation of a severe negative shock to the Malaysian economy from lower oil and gas prices next year.”
Tan also said that Bank Negara will likely leave its Overnight Policy Rate unchanged at 3.25 per cent in 2015, a change from its earlier call for a 25 basis points hike in the first half of the year.
“Bank Negara may have to take on the responsibility of ensuring that the economy remains healthy and does not slow sharply, in view of the sharp drop in global oil prices,” he added.