Malaysian headline inflation rate stable at 1.5 pct in September, likely to remain on benign trend

Malaysia’s September headline consumer price inflation accelerated at a similar pace as in the prior month. The nation’s inflation rose 1.5 percent year-on-year with modest rises in food prices mitigating the falling costs in transport, according to Malaysia’s Department of Statistics.

The index for food and non-alcoholic beverages recorded a rate of 3 percent year-on-year. This index has a 30 percent weight in the CPI basket. However, the index has since eased off the recent peak of 5 percent recorded in March 2016, noted ANZ.

Prices of transport, which accounts for 14 percent of the CPI basket, continued to fall, declining 5.5 percent year-on-year in September. However, the rate of fall has slowed since July due to firmed oil prices. Inflation for the January to September period averaged 2.2 percent.

“We are revising our 2016 CPI inflation forecast to 2.1 percent (from 2.7 percent previously), near the lower end of the 2-3 percent central bank’s forecast range for whole of 2016”, said ANZ.

The recent improvement in prices of oil is likely to increasingly feed into headline inflation. But there is no sign that demand-driven factors are pushing inflation. Core inflation has been lingering around the 2 percent handle for the sixth consecutive month. Therefore, while headline inflation is expected to accelerate slightly in the months ahead, it is not expected to move too far up due to the absence of solid growth in domestic demand, according to ANZ.

Malaysia’s inflation is likely to stay on the lower glide path after peaking in the first quarter, thanks to the high base of comparison coming from the GST in the previous year. The central bank of Malaysia is seen lowering rates only if there are evident signs of subdued household demand.