Malaysia’s inflation is likely to grow at 3.2% y/y in 2016

Malaysia's January inflation grew to 3.5% y/y as compared to December's print of 2.7%, in line with markets expectation of 3.7%. The headline inflation accelerated on the back of transport prices, in spite of price slump in level terms. Transport CPI increased to 0.6% y/y, recording its first positive year -on-year price increase since July.

Food prices also increased in level terms, as meat prices grew by 2% m/m sa on the back of high demand ahead of the Lunar New Year festive season. However, food inflation declined to 3.9% y/y, from 4.6% in December.

"We expect headline inflation to rise further in Q1 16, but to trend lower from Q2 onwards when the base effects from the implementation of the GST materialise in April. We maintain our 2016 inflation forecast at 3.2% y/y (2015: 2.1%)" Barclays said in a research note. "Barring the increases in administered prices, underlying inflation in Malaysia remains largely manageable, in our view, and we see inflation rolling down below 2% by end-2016"