Malaysia’s headline inflation remains flat in December, likely to accelerate in 2017

Malaysia’s headline consumer price inflation continues to stay benign in December in spite of the Malaysian ringgit depreciation in November and December last year. The year-on-year inflation print remained flat in the month, rising 1.8 percent, the same as in the prior month, given countering price pressures.

Food price inflation, which contributes 30.2 percent to the CPI basis, accelerated 3.7 percent year-on-year in December because of weaker MYR and higher commodity prices. On the other hand housing, water, electricity, gas and other fuels prices also continued to rise in December, rising 2.1 percent year-on-year, maintaining the same rate of acceleration as the preceding month.

This is eased by the fall in retail pump prices, feeding through into lower transport costs that dropped 0.6 percent year-on-year in December. Particularly, the prices of fuel grades RON-95, RON-97 and diesel fell 2.6 percent, 8.2 percent and 2.6 percent respectively on a year-on-year basis in December.

“Looking ahead, we expect inflation to edge up higher to 2.7 percent in 2017 from 2.1 percent in 2016 amid cost push price pressures from higher commodity prices and a weaker MYR”, said ANZ in a research report.

Fuel prices have increased considerably in January as compared to December. Cooking oil subsidies have been effectively removed in stages since November last year. Knock-on price pressures are expected to impact food-related items, putting upward pressure on headline inflation in early 2017, added ANZ.

The inflation data released today is unlikely to have much impact on Bank Negara Malaysia’s policy deliberations during their meeting tomorrow. The Malaysian central bank is expected to keep their benchmark overnight rate at 3 percent in the midst of a constructive outlook for private consumption with Budget 2017 supportive of consumption, according to ANZ.