Malaysia’s inflation decelerates in March on sharp drop in transportation costs

Malaysia’s inflation decelerated in March, recording nearly three standard deviations lower than the median forecast. Inflation decelerated 0.6% on a month-on-month seasonally adjusted basis, whereas core inflation accelerated 3.6% y/y in the month. The monthly slowdown was mainly due to lower transportation costs, which have a weight of 14% in the CPI basket. Transportation costs fell 8.2% last month, as compared with the rise of 3.6% in February.

However, inflation in Malaysia is still expected to be higher this year as compared to previous year due to adjustments in administered prices and a weaker Ringgit. But constant low commodity and energy prices might ease such those factors, noted ANZ.

A considerable slowdown in Malaysia’s inflation in March is due to a mixture of weaker domestic demand and base effects. The significant slowdown might result in monetary policy implications, according to ANZ.

Indeed, inflation is normalizing from its peak. The weak inflation data strengthens the view that domestic demand is weakening, even though the main reason behind March’s weak print was a decline in transportation costs, said ANZ.

The likelihood of easing private consumption raises the possibility of central bank easing policy during its meeting next month, according ANZ. But, this not the current base case given the liquidity tightness in the banking sector that might hamper the policy rate cuts transmission, added ANZ.