Malaysian headline inflation remains unchanged in May, likely to rise sharply towards 2 pct in June

Malaysian headline inflation continued to be the same in May. On a year-on-year basis, the consumer price inflation remained the same at 0.2 percent, the same as the previous month. On a sequential basis, CPI rose 0.2 percent, following no change in April.

Sequentially, food prices rose 0.3 percent sequentially, after two straight sequential falls, likely due to the festive season, noted ANZ in a research report. Prices of ‘housing and utilities’ rose 0.3 percent sequentially, slightly lower than expected. Together, these two components represent most of the sequential rise. Increased transport costs also contributed a little.

On an annual basis, transportation costs dropped 2.5 percent year-on-year in May. The reduced drag from the transport component is greatly responsible for the rebound in headline inflation since January. Core inflation eased a bit to 0.4 percent year-on-year in May. Softening growth momentum and absence of solid demand pressures imply that core inflation is expected to stay benign.

“Headline inflation is expected to rise sharply towards 2 percent y/y in June, but this reflects a low base effect (due to last year’s tax policy changes) rather than rising cost pressures. Recent comments from the Prime Minister suggest that the move to targeted fuel subsidies may be delayed (expected 1 July), limiting the upside risk to inflation from fuel price changes”, added ANZ.