KUALA LUMPUR: Malaysia’s headline inflation moderated to 3.9% year-on-year (y-o-y) in May compared with 4.4% y-o-y in April, on the back of lower fuel prices and transportation costs. On a month-on-month basis, inflation, as measured by the consumer price index (CPI), also sustained a third straight month of decline. In a statement yesterday, the Department of Statistics Malaysia said the index of transport group edged lower to 13.1% y-o-y in May from 16.7% y-o-y in April. “The average price of one litre of RON95 petrol was RM2.09 in May 2017 compared with RM1.70 in May 2016. As for RON97, the average price increased to RM2.37 in May 2017 compared with RM2.05 in May 2016. Fuels and lubricants for personal transport equipment accounted for 7.8% of the CPI weights,” it explained.
The department added that costlier food and non-alcoholic drinks also contributed to the CPI rise. The index for food and beverages, which accounted for 30.2% of the CPI weights, rose to a 14-month high of 4.4% y-o-y in May. Year to date, inflation rose 4.3% from a year earlier. In monthly terms, May CPI, however, fell 0.2% from the preceding month, it said. UOB Malaysia economist Julia Goh said May headline inflation came in below market and the research firm’s estimates of 4.1%. In a report yesterday, she expects June inflation to be between 4% and 4.2% in the second quarter of 2017 (2Q17) from 4.3% in 1Q17.
“Inflation is expected to average 3.6% this year in line with Bank Negara Malaysia’s inflation outlook of 3% to 4%,” she said. “Upside risks to watch include food prices, new tourism tax imposed on hotel accommodation (per room per night) from August, and potential subsidy rationalisation measures. Price controls will be imposed on selected items between June 17 and 30 to coincide with the Aidilfitri festivities, while an order to impose goods and services tax on more than 60 food items was recently cancelled by the customs department. “Also, PLUS highway operator has confirmed [that there will be] no increases in toll rates for now. If the bearish oil trend sustains, it could tilt the inflation trajectory even lower,” she added. Goh is of the view that ebbing pressure from oil and transportation effects, coupled with potential normalisation of real gross domestic product growth to average 4.6% in the second half of 2017, is likely to keep policy rates on hold for now.
