CPI seen easing to 2.8% this year

PETALING JAYA: The Consumer Price Index (CPI), which has slowed to 2.7% year on year in January this year versus 3.5% in December 2017, is expected to average at 2.8% this year, from 3.7% in 2017, thanks to a multitude of factors that dampened its rise, according to PublicInvest Research.
In a note today, the research house said they include the high base effect, impact of policy rate adjustment in January and also strength of the ringgit which cooled the cost of imported goods.
Recall that Bank Negara Malaysia (BNM) adjusted the Overnight Policy Rate (OPR) by 25 basis points to 3.25% in January, its first intervention in almost two years.
PublicInvest said the core CPI is also anticipated to remain benign at 2.3% this year, from 2.5% in the previous year.
“BNM will be holding its second policy meeting of the year next week and we expect OPR to remain status quo. So far, the risks of financial imbalances are containable as reflected in the less-than-inspiring indicators like the stock and property markets, not to mention the less-than-sanguine loans growth,” it said.
PublicInvest noted that Malaysia’s loan growth touched a disappointing 4.1% in 2017, compared with 5.3% in 2016, and is likely to remain flat this year.
“We also don’t see obvious risks that could affect Malaysia’s growth potential in 2018. We therefore cautiously predict policy status quo for the rest of the year,” it added.
Meanwhile, the research house said the January CPI was broadly in line with its expectation but below consensus.
It also highlighted that the core CPI, which excludes goods with high price volatility like food and energy, continued to be benign, signalling the low probability of financial imbalance risks as the marginal propensity to spend was clamped by higher borrowing rates.
“This also signals a benign demand-driven inflation,” PublicInvest said, noting that the core CPI for January was at 2.2% year on year against the average of 2.5% last year.