Deflation in short term possible: UOB Research

25 Mar 2020 / 23:28 H.

PETALING JAYA: Malaysia could experience deflation or declining consumer price index (CPI) for some months in the first half before returning to sub 1% inflation in the second half of the year, according to UOB Research.

“Reflecting our downward revision of Brent oil price forecasts for 2020 to an average of US$36/bbl (from US$66.50/bbl previously) as well as depth of expected decline in demand arising from the impact of Covid-19 pandemic and the movement control order (MCO), we slash our 2020 full-year inflation forecast to a 32-year low of 0.5% (from 1.5% previously),” the research house said in a note today.

This comes as the CPI expanded moderately at 1.3% to 122.4 in February this year compared with 120.8 in the same month of the previous year, due to falling prices of selected food items, lower actual housing rental, and cheaper transport as a result of the collapse in global oil prices and the spread of Covid-19.

The CPI rose 1.6% in January.

UOB said the MCO extension by two weeks to April 14 is expected to further weigh on consumer prices and economic growth. “We expect Bank Negara Malaysia to cut the Overnight Policy Rate by another 50bps in Q2, as a global recession is imminent.”

Out of the 552 items covered in CPI, 343 showed an increase in February 2020 against February 2019. On the contrary, 161 items declined while 48 were unchanged, said Malaysia Chief Statistician Datuk Seri Mohd Uzir Mahidin in a press statement.

The increase in the overall index was driven by the index of miscellaneous goods & services (2.5%), transport (2.4%), housing, water, electricity, gas & other fuels (1.6%) and communication (1.5%).

The CPI for the first two months of 2020 registered an increase of 1.4% compared with the same period last year.

The readings of four states/territories namely, Selangor & Putrajaya (1.6%), Kuala Lumpur (1.5%), Pahang (1.5%) and Johor (1.4%) surpassed the national CPI rate of 1.3% in February compared with the same month in the preceding year.

For the month, all states except Malacca registered an increase in the index of food & non-alcoholic beverages.

The chief statistician stated the highest increase was recorded by Johor (1.3%), followed by Selangor & Putrajaya (1.2%), Penang (1%) and Perak (0.9%), which surpassed the national index of 0.8% for the category in February.

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