Inflation to moderate further in 2Q18, improvement expected this year

KOTA KINABALU: Malaysia’s inflation has been projected to moderate further in the second quarter of 2018 (2Q18), while 2018 is expected to see improvement from 3.7 per cent in 2017.

According to the Department of Statistics Malaysia, the consumer price index (CPI) increased by 1.4 per cent in April 2018 to 120.9 compared to 119.2 in corresponding month of the preceding year.

Malaysia’s headline inflation of 1.4 per cent in April 2018 had risen slightly from 1.3 per cent in March 2018.

The research arm of Kenanga Investment Bank Bhd (Kenanga Research) expected inflation to moderate further in the second quarter of 2018 (2Q18) as the economy slows and the stable retail fuel prices which have been capped at RM2.20 per litre and RM2.47 per litre respectively for RON95 and RON97 since March 22, 2018 despite higher crude oil prices.

Affin Hwang Investment Bank Bhd (Affin Hwang) also believed that in the months ahead, cost of transport will likely stay flat, as retail prices for RON97, RON95 and diesel, will be relatively unchanged, rather than fluctuate up and down on a weekly basis.

“We believe inflation will likely improve from 3.7 per cent in 2017 to average around the 2.5 to three per cent level in 2018, as compared to the official forecast of two to three per cent,” the research firm said.

“The zero per cent goods and services tax (GST) will likely lower inflationary pressure even though there will be some change in behaviour of household towards consumption spending during this transition.”

Kenanga Research noted that the new government’s pledge to zero rate the GST from six per cent which takes into effect on June 1 would also help to pin down cost push inflation.