Inflation slows down to 3.6% in June
CPI slows to 3.6% in June on lower fuel prices
PETALING JAYA: Malaysia’s inflation moderated for the second consecutive month in June, thanks to lower fuel prices, prompting economists to expect Bank Negara to maintain interest rates at the present level through 2017.
Data from the Statistics Department showed the consumer price index (CPI) growth – a gauge of inflation - in June slowed to 3.6% year-on-year (y-o-y) from 3.9% y-o-y in the preceding month.
This compared with consensus expectations of CPI growth of 3.9% y-o-y for June.
The index showed the transport component registered the fastest pace of moderation last month at 10.5% y-o-y, compared with 13.1% y-o-y in May. This, economists said, was a reflection of lower fuel prices.
“As we expected, the moderation was mainly driven by a decline in the transport component, reflecting lower fuel prices – the daily average ceiling price of RON95 petrol was reduced by 4.3% month-on-month in June,” Nomura Research said.
“Overall, we continue to forecast a moderation in inflation through the rest of the year,” it added.
The brokerage said it would expect Bank Negara to keep the overnight policy rate unchanged at 3% through 2017.
“Overall, our baseline forecast remains that the policy rate this year will be kept unchanged, though this could change if financial-imbalance risks continue to build in a sustained fashion,” Nomura Securities said.
It pointed out that Bank Negara noted in its latest monetary policy statement that it expected core inflation to remain contained despite robust domestic demand.
Similarly, AmBank Research chief economist Anthony Dass said chances of an interest rate hike for the remaining part of 2017 were relatively low.
“The latest data supports our view that the central bank will not reprice upwards its interest rate of 0.25% in the coming meeting in August although inflation has been on the uptrend partly due to higher import cost as a result of the weak pound.
“Anaemic wage growth averaging around 2% is still hurting households’ real disposable income, which the central bank is watching closely,” he said.
“However, we are not ruling out on a no rate hike by the central bank in 2017. Inflation may not have surpassed its peak yet as the lagged effect from the huge drop in the value of the pound is still expected to work its way through fully into the wholesale and retail prices.
“Besides, oil prices remain volatile and could bounce back during the year. We maintain our 45% probability for a rate hike by 25 basis points sometime in 2017, depending on inflation and wage growth,” he added.