Malaysia headline inflation likely to average 3.6 pct throughout 2017, says ANZ Research

Malaysia’s headline inflation is expected to average 3.6 percent, in line with Bank Negara Malaysia’s (BNM) recently upward revised forecast of 3.0-4.0 percent. Nonetheless, core inflation is likely to rise only modestly as growth is likely to remain under pressure.

Malaysia’s headline inflation accelerated in March on the back of higher domestic fuel prices, partly exacerbated by the low base of comparison in the preceding year. Headline inflation is expected to be more volatile from April onwards as fuel prices, which have a weighting of 7.8 percent in the CPI basket, have been adjusted on a weekly basis since March 30, ANZ Research reported.

For the first three weeks of April, fuel price is estimated to be lower by 5 percent m/m but still 23 percent higher compared with the preceding year. Given that the weight of fuel and lubricants in the CPI basket is 7.8 percent, this could potentially add 1.8ppt to the headline CPI inflation.

On-year inflation climbed higher in March, owing to a 48 percent y/y average increase in domestic fuel prices and the attendant knock-on impact on transport costs. Transport costs rose 23 percent y/y in March (February: 18 percent). During the month, core inflation, which excludes volatile items of fresh food and administered prices of goods and services, remained stable at 2.5 percent y/y.

"Growth dynamics do not point to the emergence of strong demand-pull inflationary pressures. Hence we expect core inflation to remain relatively modest. BNM is likely to peer through the inflation ascent," the report said.