Malaysia Inflation Eases

Malaysia’s consumer price inflation eased in March to its lowest level in twenty months as cheaper fuel prices cushioned impact from costlier food, official data Wednesday showed.

The consumer price index, Malaysia’s main gauge of inflation, rose 1.3% in March from a year earlier, the department of statistics said in a statement. That compares with a median 1.6% increase predicted in a Nikkei Markets poll and February’s 1.4% year-on-year gain. The retail inflation print was the lowest since Jul. 2016’s 1.1% reading.

Economists widely agree inflation in Malaysia could rebound slightly and remain modest in the coming months, although they are divided over the central bank’s policy rate action.

“We expect no further OPR hikes this year amid muted inflationary pressure, a strong ringgit and heightened external risks stemming from the US-China trade dispute,” said CIMB Investment Bank’s economist Michelle Chia.

On the other hand, Australia and New Zealand Banking Group expects Malaysia’s central bank could raise the benchmark overnight policy rate by 25 basis points to 3.50% in September. “We continue to believe that Bank Negara Malaysia will normalize monetary policy against the backdrop of strong growth,” ANZ’s Radhika Piplani and Sanjay Mathur wrote in a note to clients.

The food and non-alcoholic beverages index, which carries the largest weighting at 30.2%, climbed 2.8% in March from a year earlier. The index for transport group, that includes gasoline and diesel, eased 1.5% year-on-year.

Core inflation, which excludes most volatile items such as fresh food and energy prices, rose 1.7% in March when compared with the same month in 2017. The index fell 0.3% from February.

Nomura Securities, which predicts that interest rates will remain unchanged this year, said core inflation will stay broadly stable at around 1.8% in April and May before rising slightly in June. Core inflation is expected to average 2.0% for the full year, slightly lower than 2017’s 2.3%, it said.

“Not only is core inflation still low, but GDP growth also remains on track to moderate this year to 5.5% from 5.9% in 2017,” Nomura’s Euben Paracuelles and Brian Tan wrote in a report.

Government forecast pegs inflation at between 2.5% and 3.5% this year compared with 3.7% in 2017, while the third-largest Southeast Asian economy could expand as much as 6.0% in 2018 from 5.9% a year earlier.