Malaysia's inflation rate in May rises at fastest pace in four months

PETALING JAYA: Malaysia's consumer price index (CPI) increased 1.8% in May 2018 – the fastest pace in four months – to 121.1 compared with 119.0 in the corresponding month of the preceding year due to a strong recovery in transport prices.
According to the Department of Statistics, among the major groups which recorded increases were transport (+3.8%); food & non-alcoholic beverages (+2.2%); housing, water, electricity, gas & other fuels (+2.1%); restaurants and hotels (+2.1%); health (+1.9%); and furnishings, household equipment & routine household maintenance (+1.5%).
MIDF Research expects inflation to moderate in the upcoming months amid zero-rated GST, tax holiday period until the implementation of the Sales and Services Tax in September and stable retail fuel prices, which will reduce business costs.
“At this juncture, we expect 2018’s fuel-related inflation to moderate amid higher base effects, re-subsidisation of domestic fuel price and high likelihood of a downward adjustment of global commodity prices in 2H18 from the current temporary factors, which pushed the prices up,” said MIDF Research.
It expects headline inflation to average at 2.6% this year compared with 3.8% in 2017 amid higher base effects, supported by inflation rate for 1Q18 which stood at 1.8% compared with 4.2% in the same period last year.
“As inflationary pressure remains steady, we anticipate Bank Negara Malaysia to maintain its current monetary policy with no more hikes in the overnight policy rate for the rest of 2018 barring any pleasant upward surprises in domestic economic growth,” it said.
The research firm said that food inflation in Malaysia continued to fall from 2.6% year on year (yoy) in April 2018 to 2.2% yoy last month. Prices for fresh food products such as meat and seafood continued expanding however at a moderate pace of 1.6% yoy and 5.9% yoy respectively.
In contrast, fruits inflation increased to 1.5% yoy while vegetables decreased further by 3.7% yoy. There is a potential for food inflation to rise in June due to higher demand for Ramadan and Hari Raya.
On a monthly basis, the May CPI was up 0.2% compared with April 2018.
Core inflation meanwhile, rose 1.5% in May 2018 compared with the same month of the previous year. Core inflation excludes most volatile items of fresh food as well as administered prices of goods and services.
For the first five months of the year, the CPI registered an increase of 1.7% against the same period last year.
In the overall CPI for May, inflation in three regions surpassed the national rate of 1.8%, namely Kuala Lumpur (+2.2%), Selangor & Putrajaya (+2.1%) and Johor (+2%).
According to MIDF Research, the inflation rate increased in May across all states except Penang.