Malaysian headline inflation remains unchanged in October

Malaysian headline inflation remained the same in the month of October. On a year-on-year basis, the consumer price inflation came in at 1.1 percent, the same as in the prior month. Sequentially, the headline inflation rose 0.2 percent in the month. The ‘Communications’ component rose 1.6 percent sequentially, contributing almost half of the rise in the overall index. Food prices rose at a modest pace of 0.1 percent sequentially, partly reversing the 0.2 percent sequential contraction in September. In all, inflation remained the same at 1.1 percent year-on-year.

Although fuel prices rose at a marginal pace in the month, on a year-on-year basis, ‘transport’ costs shrank 2.2 percent year-on-year in October. On average in the last six months, ‘transport’ costs have constituted a 0.3 percentage point drag on annual inflation. This drag will be reversed in 2020, when the blanket RON95 fuel subsidy is lifted.

Sequentially, core inflation rose 0.1 percent in October, a slower rate than in the prior month. On a year-on-year basis, core inflation slowed down to 1.4 percent year-on-year in the month.

The economic growth decelerated to 4.4 percent year-on-year in the third quarter from the prior quarter’s 4.9 percent. The current rate of economic activity is not enough to generate significant price pressures, according to an ANZ research report. The acceleration in inflation forecast next year is greatly due to the move of float RON95 petrol prices and waning base effects related to consumption tax policy changes, which weighed on inflation in most of 2019.

“The real policy rate, though lower than levels in 2018, has started to rise again of late. Recent central bank policy statements have indicated a more dovish outlook on global growth prospects. Therefore, our base case is still for a 25bp cut in the policy rate. It is however conceivable that BNM may choose to preserve its policy space after recent cut in the statutory reserve requirement (SRR)”, added ANZ.