International News

Malaysia July inflation at 1.1% rises at slowest pace in more than a year

By Wednesday August 24th, 2016 No Comments

KUALA LUMPUR – Malaysia’s July retail inflation rate decelerated further, rising at its slowest pace in more than a year, as cheaper transport charges helped offset impact from costlier food, official data showed Wednesday.

The consumer price index — Malaysia’s primary gauge for inflation – rose 1.1% in July from a year earlier, the Department of Statistics said in a statement. That compares to June’s 1.6% year-on-year increase and lagged the median 1.2% rise predicted by economists. On a seasonally adjusted basis, the index rose 0.3% from June.

The latest reading marks the fifth straight month of price decline after annual retail inflation printed a seven-year peak of 4.2% in February.

Economists expect inflation will likely pick up pace in the months ahead but remain divided over the central bank’s monetary policy action.

“As our projected pick-up in inflation is mainly the result of base effects, we do not believe this will significantly influence the monetary policy outlook,” Nomura economists Euben Paracuelles and Brian Tan wrote in a note. “We maintain our baseline view that Bank Negara Malaysia will cut its policy rate again later this year, likely in November, when the drag on growth from tighter fiscal policy becomes more visible.”

The food and non-alcoholic beverage index, which carries the largest weighting at 30.2%, climbed 3.8% in July from a year earlier while non-food items declined 0.2%. Core inflation, which excludes most volatile items including fresh food and energy prices, rose 2.0% year-on-year in July.

On a seasonally adjusted month-on-month basis, food and non-alcoholic beverages index gained 0.2% in July. Non-food group was up 0.2% from June as well.

“We reckon the costs for food and beverages related products will rise further amid the increases in wholesale price of refined sugar by up to 30% effective August 1,” said JF Apex Securities.

However, the brokerage believes that the central bank will keep the policy interest rate steady at 3.00% this year unless the global economy weakens further. “We opine that domestic demand continues to be main driver for our economic growth,” it added.

On July 13, Malaysia’s central bank lowered the key overnight policy rate, or OPR by a quarter percentage point to 3.00%, the first change in two years, in a bid to stimulate the economy amid growing uncertainties after the U.K.’s shock decision to exit the European Union. The OPR’s last change was in July 2014, when it was raised by 0.25 percentage point, and the cut was Malaysia’s first since 2009.

Bank Negara Malaysia has also revised its inflation projection to between 2% and 3% in 2016, compared to an earlier estimate of between 2.5% and 3.5%, noting that prices are expected to remain stable amid low commodity prices and generally subdued global inflation.

Meanwhile, Malaysia’s economic growth slowed further to 4.0% in the second quarter compared to 4.2% in the first three months of the year. For the whole year, the third-largest Southeast Asian economy will likely expand between 4.0% and 4.5% this year from 5.0% growth in 2015, according to government’s forecast.

(Source: Nikkei Asian Review)

Leave a Reply