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Malaysia: Rise in inflation due to higher retail fuel prices

PETALING JAYA: Higher retail fuel prices is the main reason that resulted in the rise of inflation in the country last month.

According to the Statistics Department, the consumer price index (CPI), which is a gauge of headline inflation in the country, rose 1.8% in May from 1.4% in the preceding month. The pace of CPI increase matched the median estimate of 14 economists surveyed by Bloomberg.

Commenting on the CPI report, chief statistician Datuk Seri Dr Mohd Uzir Mahidin said the overall index was affected by an increase in the transport group by 3.8% in May.

Besides the transport, other major groups that recorded increases were indices for food and non-alcoholic beverages (2.2%), housing, electricity, gas and other fuels (2.1%), restaurants and hotels (2.1%), health (1.9%) and furnishings, household equipment and routine household maintenance (1.5%).

Year-to-date, the CPI for January-May registered an increase of 1.7% against the same period last year.

According to Nomura Research, inflation will likely decline this month, and with CPI expected to remain mild through 2018, Bank Negara will likely keep the interest rates unchanged at current level.

“We expect headline CPI inflation to fall in June due to the zero-rating of the goods and services tax (GST) and the return of fuel subsidies. For the full year, we forecast CPI inflation of 1.3%, below Bank Negara’s 2%-3% forecast range,” Nomura Research said.

“With gross domestic product growth also likely to slow to 5.1% in 2018 from 5.9% in 2017, below Bank Negara’s 5.5%-6.0% forecast, this supports our call of no change to the 3.25% policy rate for the rest of this year,” it added.

MIDF Research concurred, saying that it expected inflation to be stable.

“As inflationary pressure remains steady, we anticipate Bank Negara to maintain its current monetary policy with no more hikes in overnight policy rate for the rest of 2018 barring any pleasant upward surprises in domestic economic growth,” the brokerage said.

“We expect inflationary pressure mainly from fuel-related items to calm, consistent with gradual rise in global commodity prices on top of pass-through effect from a strengthening ringgit, re-subsidisation of domestic fuel price and withdrawal of GST,” it wrote in its report.

MIDF Research said amid higher base effects, headline inflation rate should average at 2.6% this year compared with 3.8% in 2017.

Meanwhile, RAM Rating Services Bhd head of research Kristina Fong said uncertainty remained over the overall inflation outlook for 2018 as more policy measures were being unveiled by the new administration, with the change in tax system from the GST to Sales and Services Tax (SST), being the most pertinent to the full-year estimation.

She said while the move to zero-rate the GST effective June 1 was expected to reduce overall inflationary pressure, the reintroduction of the SST could to some extent, offset the deflationary impact of the former.

The SST would be in place in September.

Source: https://www.thestar.com.my/business/business-news/2018/06/21/rise-in-inflation-due-to-higher-retail-fuel-prices/#hgGzdyKSavGYpRV7.99