Inflation to remain elevated in Q4, says PublicInvest Research

PETALING JAYA: PublicInvest Research expects inflation to average at 4.3% in the fourth quarter of 2017 (Q4), pushing the full-year average to 4.1%, slightly above the central bank’s projection.
“The low base factor along with sticky oil prices, form the basis of elevated inflation expectation for the final quarter of the year,” the research house said in a report today.
It said various factors will support crude oil prices in the near-term, among which are on-going tensions in the Korean peninsula. The likely improvement in crude oil supply and demand dynamics may also support prices, particularly with oil producers’ output cut agreement getting a second lifeline after expiration of the first agreement in March next year.
“All these will anchor crude oil prices in the near term, hence, our expectation of elevated inflation in 4Q’17. This more so when the current Singapore MOGAS 95 (Platts) price of US$70 (RM295.40) per barrel, if it stays at the current level, will be 13% higher than a year ago.”
HLIB Research opined that in October, inflation is expected to moderate as oil prices have stabilised compared with September amid fading base effect. The acceleration in September inflation was expected as petrol prices rose during the month.
“We expect domestic-demand inflation to be contained, consistent with stable core inflation and Bank Negara Malaysia’s (BNM) assessment. Nevertheless, a prolonged period of robust exports may have a positive spillover on domestic demand, which could feed a rise in core inflation.”
As it expects inflation to moderate from September highs and oil prices to remain range-bound, it does not expect BNM to react to the temporary rise in headline inflation as it is driven by the supply (commodity) factor. HLIB maintains its forecast for BNM to stand pat in 2017.
AmBank Research expects the full-year inflation to be around 3.7%, which is closer to the higher range set by BNM at 3%–4%.
“Pressure will continue to come from retail fuel prices given firmer global oil prices, and the low base. Thus we, expect October’s inflation to be around 4% year-on-year (y-o-y),” it said.
September’s inflation rose 4.3% y-o-y in September, mainly driven by higher fuel prices.
Meanwhile, core inflation, which excludes prices of fresh food and administered prices, remained stable at 2.4% for the second straight month. The higher inflation in September came from both food and non-food sectors.