Malaysian consumer price inflation eases in January, central bank likely to hike in September

Malaysian consumer price inflation eased in the month of January. On a year-on-year basis, the headline inflation slowed to 2.7 percent from 3.5 percent. This suggests a sequential rise of 0.3 percent. The easing of inflation was mainly due a moderation in transport prices, which slowed to 5.7 percent year-on-year from 11.5 percent recorded in the prior month.

Rises in food prices also eased a bit from 4.1 percent year-on-year to 3.8 percent. Price pressures in other categories either slowed or stayed the same, except for furnishings and household equipment which recorded a slight rise. Core inflation came in at 2.2 percent year-on-year in the month.

Also, the authorities have updated the CPI basket based on the Household Expenditure Survey 2016. According to an ANZ research report, headline inflation in Malaysia is likely to moderate in 2018 from a full year average of 3.7 percent year-on-year in 2017. The moderation shows a combination of higher base effects and a stronger Malaysian ringgit. The appreciation of MYR is aiding in keeping imported prices in check.

The underlying growth momentum is and should carry on putting upward pressure on wages. Stronger wages would in turn strengthen domestic demand and inflation. Accordingly, inflation is expected to rise in the second half of 2018 when base effects are also expected to become less favorable. In all, the risks to the 2018 headline inflation forecast of 2.7 percent year-on-year are to the upside, added ANZ.

“The evolving growth-inflation mix suggests that BNM will raise its OPR one more time. We expect a 25bps hike to 3.50% in September”, said ANZ.

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