Malaysian headline inflation accelerates year-on-year in October, likely to remain low and stable through in Q1 2019

Malaysian headline inflation accelerated in the month of October. On a year-on-year basis, the consumer price inflation rose to 0.6 percent from September’s 0.3 percent. Sequentially, the prices rose 0.2 percent, a slowdown from September’s 0.4 percent. Meanwhile, the core rate rose to 0.4 percent year-on-year from the prior month’s 0.3 percent.

Fuel prices, which rose 0.5 percent sequentially in October, owing to a hike in price for RON97 grade petrol, added positively to inflation in the month. The transport component has continued to be muted in recent months due to government-managed prices for RON95 and diesel. This is likely to change from the second quarter 2019, when fuel prices would be floated upon introduction of a targeted subsidy. Alcohol prices were up 0.8 percent in October and a rise in tobacco prices is expected in November, noted ANZ in a research report. Sequentially, food and beverage prices rose 0.5 percent sequentially, driven by a sharp rise in vegetable prices.

The data for prior month had revealed SST pass-through in the “communications” and “recreation” components. There has been further pass-through to the “household furnishings & equipment” component in October. In all, the impact has been clearer for services than for durable goods. Manufacturers continued to draw down inventories in the third quarter, and it is likely that retailers have delayed the pass-through to consumers to take advantage of stronger demand. As such, further gradual adjustment in durable goods is expected in the months ahead, said ANZ.

“Looking past the monthly numbers, we see inflation remaining low and stable through Q1 2019 before rising on a return to market determined fuel prices. Combined with more moderate economic activity and external factors such as trade tensions, we expect BNM to keep the OPR unchanged at 3.25 percent for a while”, added ANZ.