Malaysia CPI inflation surprisingly rises in August, owing to higher oil prices

Malaysia’s consumer price-led inflation index (CPI) for the month of August surprised on the upside after four consecutive months of decline, headline CPI inflation picked up in August to register 3.7 percent y/y, from 3.2 percent previously.

The uptick can be mainly attributed to higher oil prices. Transport inflation was up by 11.7 percent compared to the same period last year. The prices of RON95 and RON97 petrol were 21 percent and 13.8 percent higher compared to the same period last year.

Moreover, overall transport CPI index has also risen by about 4 percent relative to July due to upward adjustments in pump prices. Indeed, transport inflation is still the main driver and it will continue to have a strong influence on overall inflation in the coming months. Yet, policymakers can take comfort that underlying inflationary pressure has remained benign, with core inflation at 2.4 percent in the month, and fairly stable in recent months.

"That probably explains why Bank Negara has kept the policy rate unchanged at 3.00 percent thus far even though real policy rate is negative. In fact, we continue to expect Bank Negara to keep the OPR at 3.00 percent for the rest of the year," DBS Bank commented in its latest research report.

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