AmBank Research expects gradual pickup in inflation

PETALING JAYA: AmBank Research expects inflation to rise gradually going forward, driven by firmer commodities prices and tighter labour market conditions, which should result in firmer wages and better disposable spending by households.
Nevertheless, the research house said that better investment in capacity expansion and labour productivity should contain the upside inflationary pressure.
“We project inflation would be around 2-2.5%, which falls within the Bank Negara Malaysia (BNM) range of 2-3%. We continue to believe that strong growth conditions will allow BNM to normalise monetary policy further,” it said in a note today.
“Hence, we maintain our 30% chance of BNM raising the OPR (overnight policy rate) by 25 basis points in September, taking the year-end policy rate to 3.5%,” it added.
On a separate note, PublicInvest Research said it expects the consumer price index (CPI) to remain benign for the rest of the year due to smaller effect of global cost factors.
It said it is of the view that the series of US interest rate adjustments will keep a lid on commodities like oil, adding that a favourable base effect would also help CPI following 2017’s elevated average of 3.7%.
In addition, it said the strength of the ringgit will also help as this will clamp the cost of imported goods.
The firm forecasts CPI to average at 2.2% this year with core CPI to remain tepid at 1.9%.
“Based on the mandate of BNM which is to ensure price stability while being supportive of growth, we don’t see strong evidence for the policy rate to be intervened again post the adjustment in January given the projected gross domestic product growth rate of 5.3% in 2018 and 2019.”
“Additionally, inflation rate projection of 2.2% and 2.7% in 2018 and 2019 is within the long-term average of 2.6% (2006-2017), hardly a strong reason to suggest risks of financial imbalances or demand-driven inflation,” it added.
Furthermore, it said should there be any pressure on global cost factors, notably oil prices, due to extreme conditions like geopolitical risks or supply disruption, it believes that the condition will be transitory in nature and hence, does not warrant any adjustment.