Malaysia's inflation receded further in September, falling to 2.6% y/y (August: 3.1%). The movement in inflation continued to be driven by lower fuel prices, with prices falling 7.9% y/y in September (Aug: -3.7% y/y).
Food prices were the offsetting factor in today's release. Indeed, food price inflation remained elevated, with prices rising 4.4% y/y (Aug: 4.3% y/y), as weather-related disruptions continued to push prices higher. Services costs remained sticky, as inflation for education, communication and recreation services held firm.
The underlying inflation seems to manageable. Bank Negara Malaysia has already said it expects inflation to trend higher in H2 15, so there is unlikely to be a policy response to inflation prints, states Barclays.
Analysts think the current monetary stance will be maintained because underlying inflation is contained.
"BNM sounded cautious about the global growth backdrop in its latest policy statement, and it is believed the central bank is likely to maintain its current monetary policy stance until Q2 16. The weaker MYR has only affected urban inflation at the margin. As such, despite recent market volatility, BNM is expected to undertake an interest rate defence of the MYR", says Barclays.
