KUALA LUMPUR: The Consumer Price Index (CPI), which rose sharply in September, mostly due to fuel prices and base effects, will likely moderate in the coming months, according to some research houses. The CPI, the official barometer of inflation, rose to 4.3 per cent in September from 3.7 per cent in the preceding month. Economists said pressure will continue to come from retail fuel prices given firmer global oil prices, and the low base. Nomura Research said the September number marks the peak for CPI inflation, which should ease to around 3.4 per cent in the fourth quarter from 4.3 per cent in September on base effects from the fuel price hikes last year. On the September data, Affin Investment Bank Bhd noted that the higher headline inflation data was due mainly to the higher transport cost. This was a result of higher domestic retail petrol price in September, where RON95 rose by an average of RM2.19/litre versus RM1.70/litre a year ago.
Food prices increased by 4.8 per cent year-on-year, the highest year-on-year increase in 18 months, attributed to higher prices of fresh seafood, fresh fish and fresh vegetables. Core inflation, which excludes volatile and administered price items, remained unchanged at 2.4 per cent in September. “We believe that the inflation number will improve further, due partly to the normalisation of the oil price towards the end of last year, as global oil price will likely remain relatively stable, leading to a less volatile inflation numbers for the year,” Affin IB said. Affin IB, however, revised its inflation forecast to 3.9 per cent for 2017 (from an earlier projection of 3.5 per cent), but expects the inflation rate to be between 2.2-2.5 per cent for 2018. Hong Leong Investment Bank Bhd expects inflation to moderate in October as oil prices stabilised compared to the previous month. It also expects Bank Negara Malaysia to stand pat for the rest of the year, saying the headline inflation hike was temporary and driven by supply factor.
Chief economist of AmBank group Anthony Dass expects the full-year inflation to be around 3.7 per cent which is closer to the higher range set by Bank Negara at three to four per cent. “Our base case suggests that the Overnight Policy Rate (OPR) will stay put at 3.00 per cent for 2017, while we continue to maintain our 45 per cent chance for a rate hike in November by 25 basis points.” Stronger inflation numbers and macro data which point to another round of better-than-expected GDP growth plus a pickup in core CPI will open the door sooner for a rate hike. Affin IB expects a possible rate hike of 25 basis points to 3.25 per cent by end 2018.
