Malaysia’s headline inflation for the month of May, set to be released late on Wednesday, is likely to decline owing to drop in transport cost index on account of fall in crude oil prices, which also caused the downward adjustment in pump prices, as well.
Consumer prices in Malaysia are expected to register two percent y/y in May, marginally down from 2.1 percent in April. The retail fuel prices were cut by at least 4.9 percent in March and the effects are expected to linger on until May, DBS reported.
While, global oil prices have rebounded to some extent in the recent weeks, the upside remains limited in terms of weak domestic demand, which is likely to sustain over the coming few months. A weak labor market is expected to exert downward pressure on both investment and consumption growth in the country.
"The headline number is now expected to hover between 1 to 2 percent range in the months ahead. We have since lowered our full year inflation forecast to 2.1 percent, down from 2.5 percent previously," DBS commented in their report.
All these factors, coupled together, are likely to generate demand-pull inflation into the economy in the near term.
