Malaysia Sep consumer inflation likely to rise, to remain range-bound in coming months

Consumer inflation in Malaysia is expected to have risen during the month of September, largely driven by the low base in the same period last year. However, inflation is largely expected to stay range-bound in the coming months before climbing in early 2017.

Malaysia’s headline CPI inflation for September is expected to register 1.9 percent, up from 1.5 percent in the previous month and 1.1 percent the month before. However, this is probably the peak for now and largely driven by the low base in the same period last year. Inflation will most likely stay range-bound between 1-2 percent for the coming months before climbing above the 2 percent mark from early 2017 onwards, DBS reported.

Rising inflation could provide room to the central bank of Malaysia to ease monetary policy; however, a slowdown in growth momentum poses serious concerns to the economy. GDP growth has slowed amid the challenging external environment while the labor market is showing visible signs of softening.

Meanwhile, expectations are on for Bank Negara to hold on interest rate at its next monetary policy meeting, after having paused in September. Markets will eye the announcement of the upcoming Budget 2017, which is scheduled to be unveiled this Friday.

"We continue to expect another 25bps cut in the Overnight Policy Rate in the November meeting with inflation likely to soften in the next 2-3 months and as growth concern intensifies," DBS commented in its latest research note.