New regulations could push CPI higher
KUCHING: The new Price Control Anti-Profiteering Regulations 2016 (Mechanism to Determine Unreasonably High Profit for Goods) or PCAP could eventually push the consumer price index (CPI) higher.
However, analysts also believe that businesses might not take an aggressive stance in marking up prices of their products and services.
In a recent report, the research arm of TA Securities Holdings Bhd (TA Securities) pointed out that while the new regulation seem to apply to certain classes of goods, businesses might increase prices for other products and services, which would eventually push Malaysia’s CPI higher.
“This comes as companies have been seeking a sustainable margin against rising operational costs, especially from recent developments such as higher minimum wage since July last year, adverse foreign exchange (forex) impact on commodity and raw material prices.
“In addition, the given three months transition period will lead companies to test with their pricing strategies with progressive increments in determining an ideal price point to maximise margin or
This comes as companies have been seeking a sustainable margin against rising operational costs, especially from recent developments such as higher minimum wage since July last year, adverse foreign exchange (forex) impact on commodity and raw material prices.
profits,” it highlighted.
Nevertheless, the research team pointed out that it does not anticipate a very aggressive mark up in prices as companies would take a more cautious approach and implement strategic price strategies.
“This is especially with the economic situation is still fragile, rising cost of living as well as weak consumer sentiment.
“Indeed, the Malaysian Institute of Economic Research (MIER) consumer sentiment index (CSI) has decreased further to 69.8 points in the fourth quarter of 2016 (compared with 73.6 points in 3Q16),” it added.
Going forward, TA Securities cautioned that there would likely be more cost push factors in the pipeline. Hence, it upgraded its consumer price forecast, which is expected to be higher than last year.
It noted that some of these cost push factors include higher food costs following reviews in sugar and cooking oil prices.
“We predict food prices to remain high in the coming months (TA forecast range at 3.5 to four per cent level) especially with the upward adjustments in retail cooking oil and sugar as well as increase seen in global commodity prices,” it explained.
Aside from that, it also expected higher retail pump price as compared to last year.
It said, “We also expect persistent high of retail pump price across categories than last year in tandem with gradual recovery in global oil price.
“Despite unchanged retail pump prices for RON 97 and RON 95 in March 2017 at RM2.60 per liter and RM2.30 respectively, it was still higher than March last year.
“The difference was 65 sen for RON 97; 70 sen for RON 95; and 85 sen higher for diesel. Under Transport sub-sector, fuel & lubricants contributes about 7.8 per cent of total CPI basket.
“We estimate that for every 10 per cent increase in average pump price, it will lead to a six per cent increase in Transport Index, vice versa.”
It also pointed out that the new fuel ceiling price mechanism would be introduced in Malaysia next month.
Further scheduled and pending reviews of “administered prices” following the subsidy rationalisation programme including gas prices, electricity tariffs, toll rate and sewerage charges could also add pressure to Malaysia’s inflation level, it said.
Hence, influenced by cost push factors rather than demand pull, the research team raised its 2017 CPI forecast to 2.7 per cent yearon-year (y-o-y) from 2.4 per cent y-o-y compared with 2.1 per cent y-o-y in 2016.
TA Securities