Malaysia’s consumer price inflation decelerates slightly in October

Malaysia’s headline consumer price inflation slowed a bit in October, with the drop in transport costs more than countering the moderate increase in prices of food. The headline inflation fell slightly to 1.4 percent in October from September’s print of 1.5 percent. This was below consensus expectations of 1.5 percent.

Even though the prices of fuel grades RON95 and RON97 rose slightly in October from the prior month, prices continued to stay low on a year-on-year basis. Thus, costs of transport, which accounts for 14 percent of the CPI basket, continued to drop 5.5 percent year-on-year in October, at a similar pace of contraction in September. On the contrary, food and non-alcoholic beverages prices, which contribute 30 percent to the CPI basket, were up 2.5 percent year-on-year in October, a slowdown from September’s 3.9 percent.

The subsidy rationalization for cooking oil, which was implemented from November, along with the MYR’s depreciation, is expected to ultimately feed into slightly higher headline inflation, said ANZ in a research report. However, the consumer price inflation is likely to stay at the lower end of the central bank’s forecast of 2 percent 3 percent for this year.

Malaysia’s economic conditions have therefore evolved consistent with the central bank’s projections. The private domestic demand and economic outlook have improved, with Budget 2017 supportive of stronger consumption, assisting in countering the possible deceleration in public investment because of the recent reduction in development expenditure. However, the balance of risks, at this point, is still tilted towards growth disappointment, added ANZ. The Malaysian central bank is expected to keep the interest rates on hold for an extended period of time in the midst of household consumption and MYR weakness.