Higher transport costs drive September inflation to five-month high

KUALA LUMPUR: Headline inflation rose by 4.3 per cent in September, at par with market expectations, pushed by a rise in fuel and transport prices.

The research division of MIDF Amanah Investment Bank Bhd (MIDF Research) said so far, the average inflation rate for three quarters in 2017 is four per cent which was slightly above the firm’s yearly forecast of 3.8 per cent.

“The recent uptick in overall prices was mainly driven by rise in fuel and transport prices,” it said in its report. “Among others, increase in global commodity prices due to hurricane Harvey and Irma gave positive knockon effects on Malaysia’s overall prices especially fuel-related items.

“In spite of this, we view the shock in prices is only temporary. Core inflation stays at 2.4 per cent similar to August’s, lowest in eight months.”

Referring to Brent oil price, MIDF Research saw that the price grew by 17.4 per cent year on year (y-o-y) to US$55.3 per barrel in September as compared to the same month of last year, at US$47.10. Hence, the differential translates into higher fuel pump prices in September.

“For example, price of RON95 in August averaging at RM2.11 per litre whereas in September, the average price was RM2.18. We observed that transport inflation as well as price of fuels and lubricants rose by 15.8 per cent y-o-y and 27.9 per cent y-o-y respectively last month.

“Moving forward, average Brent oil price and RON95 for the first three weeks of October registered at US$56.8 and RM2.17 respectively. At this juncture, we can anticipate that October’s inflation rate to remain above four per cent with fuel-related items remain as dominant driving factors.”

On a state by state comparison, inflation rate across all states had upward ride in September, similar trend with national’s inflation. A Hike in fuel and transport prices were major factors pushing the inflation rates.

“Melaka recorded the highest rate at 4.9 per cent as compared to other states,” it said. “Other than fuel-related items, tourism activity in the state is another reason given that prices of restaurant and hotel grew strongly by 5.4 per cent, fastest than other states.

“In spite of this, we maintain our view that the second half of 2017 will see inflation in every state to grow at moderate pace due to stability in fuel prices and seasonal factors.”

MIDF Research noted that hurricanes had its one-off impact to global inflation, most notably in the US as after five months of tapering down, the US headline inflation surged to 2.2 per cent from a 1.6 per cent low in June 2017.

The rise in inflation was mainly due to hike in gasoline prices caused by the hurricane Harvey and Irma.

“We viewed the latest inflation trend as one-off and only give temporary effect. Not just the US, inflation in other economies are experiencing slight hike in overall price growth due to the hurricanes attack which cause an uptick in global commodity prices.

“Nevertheless, we foresee global inflation will remain expanding at faster pace in October given that level of global commodity prices stay higher than the first half average prices.

“We maintain our forecast of 3.8 per cent for inflation in 2017, projecting a slight slowing down in overall prices for the final quarter of 2017.

“Among others, unfavourable base effect, moderating commodity prices and modest appreciation of the ringgit are dragging factors on Malaysia’s inflation outlook for the fourth quarter.”