Malaysian consumer price index falls y/y in May, BNM likely to lower policy rate by 50 bps in May

Malaysian consumer price index fell in the month of May. On a year-on-year basis, the headline inflation declined 2.9 percent in the month, unchanged from April. Nevertheless, it rose 0.3 percent on a month-on-month basis, implying that inflation might have bottomed out, noted ANZ in a research report.

The rise on a sequential basis was driven by the 1 percent and 0.3 percent rise in the ‘Transport’ and ‘Food’ components, respectively.

The year-on-year decline of 2.9 percent in May was the same as in April. With a rebound in crude oil prices, the ‘Transport’ component constituted a slightly lower drag of -3.04 percentage points on overall inflation in May. In the near term, stable albeit still low oil prices will mildly support headline inflation, said ANZ. ‘Housing and electricity’ also dampened the year-on-year inflation by -0.63 percentage points.

On a year-on-year basis, core inflation slowed down to 1.1 percent in May, after coming in at 1.3 percent year-on-year in each of the previous three months. The easing was because of lower prices in the ‘Housing and electricity’ and ‘Furnishings and Household equipment’ categories.

“Bank Negara Malaysia cut its policy rate by 50bps to 2.00 percent in May. Even so, real rates remain elevated at slightly above 5.0 percent and with concerns over growth persisting, BNM has ample room to ease. We expect that BNM will cut the OPR by another 50bps to 1.50 percent at its meeting next month”, added ANZ.