AllianceDBS: April CPI rises to 1.8% on GST

PETALING JAYA: AllianceDBS Research said the Consumer Price Index (CPI) which accelerated to 1.8% year-on-year (y-o-y) in April from 0.9% in March, was largely attributed by the Goods and Services Tax implementation on April 1.
However, according to Alliance Research chief economist Manokaran Mottain, the overall inflation rate was still below Bloomberg consensus estimates of 2.2% for the month.
"Going forward, we maintain our expectation of higher price pressures on the back of cost-push inflation adjustments in the coming months," he said in a note yesterday.
Additionally, he said that the revised public transportation cost would also contribute to higher price pressure, noting the transport sector sub-index rose 0.3% y-o-y, despite the monthly drop of 4.8% over a month ago.
"Although pump prices have been adjusted upwards from the lows in recent months (February and March) according to the managed float automatic pricing mechanism (reflected on the month-on-month price pressures increase), on a y-o-y basis, transport sector inflation would continue to weigh down on overall inflation due to its high base effect," he added.
Manokaran noted that after stripping off the volatile food and beverages and also the transport components, he estimated that the underlying inflation had accelerated to 3.1% in April, up from 1.8% in March and higher than 2014 full-year average of 2.5%.
"While we expect underlying price pressures to continue to trend upwards in the coming months, we expect our full-year inflation to be 3% in 2015 of the lower bound 3-3.5% estimation previously," he said.
Given the moderating economic growth of 5.6% in 1Q'15 (5.8% in 4Q'14) and easing price pressures in the economy, Manokaran expects Bank Negara Malaysia to likely keep the overnight policy rate steady at 3.25% this year.