Higher average fuel price pushes up headline inflation
RHB Research says rate expected to moderate moving forward
PETALING JAYA: Headline inflation in Malaysia, which measures the more volatile food and energy prices, hit the highest level since March, rising by 4.3% year-on-year (y-o-y) in September, largely driven by the higher average fuel price.
According to the Statistics Department’s latest consumer price index (CPI) report, transportation costs in September increased significantly by nearly 15.8% y-o-y, the highest among other components of CPI which measures inflation.
Meanwhile, food and non-alcoholic beverages prices increased by 4.6% y-o-y, second only to transportation costs.
Bloomberg figures indicated that September’s inflation was in line with expectation. It was higher than August’s 3.7% inflation rate.
The Statistics Department said that the surge in transportation costs was largely attributed to the increase in average fuel price last month.
“The index of transport group showed a significant increase of 15.8% y-o-y in September 2017, after rising 11.7% in August.
“The average price of 1 litre of RON95 petrol was RM2.19 in September as compared to RM1.70 a year earlier. As for RON97, the average price increased to RM2.48 last month in contrast to RM2.05 in September 2016,” it said in a press release.
On the other hand, the food and non-alcoholic beverages sub-group index saw an increase due to the sharp surge in the prices of oils and fats prices, which jumped by nearly 40% y-o-y.
Note that, food and non-alcoholic beverages accounted 30.2% in the CPI weights.
However, despite the increase in headline inflation, the clothing and footwear and communications sub-group indices registered decline in overall prices by nearly 0.3% y-o-y in September respectively.
Core inflation-wise, the country registered a 2.4% increase in September as compared to the same month last year.
To note, the core inflation rate excludes nine of the most volatile items of fresh foods as well as administered prices of goods and services.
Moving forward, RHB Research expects the headline inflation rate to moderate, on the back of stable fuel prices and stronger ringgit.
The research house projects the headline inflation to ease to 3.4% y-o-y in the second half of 2017, as compared to 4.1% in the first six months of this year.
“Headline inflation for this year could aver- age at 3.8%, up from 2.1% in 2016. This is higher than our earlier estimate of 3.5% due to faster-than-expected inflation in the third quarter.
“As for 2018, we expect inflation to moderate to 2.7%, on account of stable fuel prices, while the stronger forecast ringgit would translate into lower import prices,” said RHB Research in a note.
The brokerage also indicated that Bank Negara would likely keep the overnight policy rate (OPR) unchanged at 3% for the rest of 2017, as inflation is mainly driven by costpush factors.
However, the OPR could be increased by 25 basis points to 3.25% next year, in line with monetary policy tightening by major global central banks and as the Malaysian economy improves further.