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Malaysia – Analysts: Inflation to moderate to between 2.5% and 3.5%
PETALING JAYA: Malaysia is expected to see slower inflation, as measured by the rise in consumer price index (CPI), this year due to a high base factor from 2017.
Analysts have pegged their CPI expectations for 2018 within the official estimate of a CPI increase of 2.5% to 3.5%.
Nomura Research expected the CPI to increase 3.2%, while MIDF Research expected it to be 2.6%.
Inflation for the whole of last year came in at 3.7% – the highest in nine years – after CPI rose 3.5% in December due to a stronger rise in food and transportation costs as fuel prices increased due to the jump in crude oil prices.
This was in line with Bank Negara’s forecast of the 2017 CPI increase being in the upper range of its 3% to 4% estimate range.
On a monthly basis, the CPI increased 0.1% in December 2017 from 3.4% in November.
Nomura Research said inflation would likely start moderating in the first quarter of this year.
“We expect inflation to decline to 2.7% in the first quarter of 2018 because of base effects from the substantial fuel price hikes last year before reversing in the second quarter and averaging 3.2% for the full year,” it said in a report.
MIDF Research, on the other hand, said amid unfavourable base effects, the headline inflation rate is expected to average 2.6% this year.
“We anticipate inflationary pressure from fuel-related items to moderate, in tandem with the steady gradual rise in global commodity prices, especially crude oil.
“Plus, slight tightening measures imposed on employee’s income such as the Employees Provident Fund’s contribution back from 8% to 11% and the employee insurance scheme payment will to a certain extent affect private consumption in 2018,” the brokerage explained in a report yesterday.
Nomura Research has maintained its expectation that the central bank would raise interest rates today. “We continue to expect Bank Negara to raise its policy rate by 25 basis points (bps) on Jan 25 to 3.25%, which we believe would be intended more to reduce the pace of policy accommodation and prevent a build-up of financial imbalance risks,” it said.
“However, we think Bank Negara will likely pause from there given the election – which we expect to be called sometime in late April to early May – and the need for the Government to run a tight fiscal policy in the second half of 2018 to meet its full-year deficit target,” it explained, adding that relatively stable core inflation would also suggest little need for a more aggressive rate-hiking cycle.
RHB Research also expected Malaysia’s monetary policy stance to be tilted towards an upside in 2018. “We believe Bank Negara will increase the overnight policy rate by 25bps to 3.25%, most likely in the second quarter of 2018.
“This would be in tandem with monetary policy tightening by major global central banks and as the Malaysian economy strengthens further. It is also supported by the central bank’s hawkish tone in its previous monetary policy statement,” the brokerage said.
RHB Research has raised its CPI growth forecast to 3% from 2.7% previously on elevated crude oil prices and resilient domestic demand.
Source: https://www.thestar.com.my/business/business-news/2018/01/25/analysts-inflation-to-moderate-to-between-25-and-35/#Szx8IqcQ1uXJEGQ9.99