Malaysian headline inflation remains soft in August

Malaysian headline inflation continues to be soft in August. Sequentially, the consumer price inflation came in at 0.25 percent, an acceleration from July’s 0.1 percent. The ‘housing and utilities’ component rose 0.5 percent sequentially and was the largest contributor. Food prices rose 0.2 percent sequentially, also contributing positively to the headline figure.

Core inflation also rose 0.25 percent on a sequential basis, driven by the adjustment in housing rents. On a year-on-year basis, core rate stayed at 2 percent, unchanged from July.

The last monetary policy statement seemed more bearish on growth; nevertheless, there were no signs of an imminent rate cut. Given the challenging growth outlook ahead, the central bank is likely to cut 25 basis points in 2020, noted ANZ in a research report. The benign inflation environment certainly provides Bank Negara Malaysia with room to cut.

“The real policy rate (using core inflation) has eased from elevated levels (2018 average: 2.7 percent) due to the return of annual inflation to the ~1.5 percent mark and the policy rate cut in May. The expected elimination of the blanket fuel subsidy will push inflation higher next year, which should see the real policy rate decline further. Any cut in the policy rate will also support this”, added ANZ.