October CPI at 1.1% as soft inflation trend continues

PETALING JAYA: The full-year inflation for 2019 may hit the lowest level in a decade as the country’s soft inflation trend is expected to continue in the last two months of this year, led by cautious consumer sentiment that keeps price pressures under control.

The comment from Bank Islam chief economist Mohd Afzanizam Abdul Rashid (pic) came following the Statistics Department’s announcement yesterday that Malaysia’s headline inflation in October was 1.1%, similar to the rate seen in September.

For perspective, the monthly headline inflation rate for the January-october 2019 period had remained at 1.5% and below.

Nearly 64% or 351 of the items covered under the Consumer Price Index (CPI) recorded a price increase in October, while 150 items showed price decline. A total of 51 items were unchanged.

Mohd Afzanizam told Starbiz that the fullyear headline inflation for 2019 is forecast to hit 0.7%, which will be the lowest since 2009.

However, he expects a gradual increase in inflation next year with a full-year headline inflation of 1.8%, likely to be due to cost factor.

“This could be due to the implementation of targeted fuel subsidies next year. Not to mention the pass through effect from weak currencies to the local prices.

“In that sense, the expected increase in inflation rate in 2020 should not deter Bank Negara from prescribing additional monetary support. This means that the prospect or the scope for lower overnight policy rate is widely open, especially in the context of heightened global uncertainties,” he said.

Mohd Afzanizam projects a one-time interest rate cut of 25 basis points, likely in the first half of 2020.

Yesterday, the Statistics Department said that the CPI in October increased by 1.1% to 122 from 120.7 a year ago.

The increase in the overall index was driven by the index of Alcoholic Beverages and Tobacco (2.2%), Miscellaneous Goods and

Services (2.2%), Education (1.9%) as well as Food and Non-alcoholic Beverages (1.8%).

The 1.1% inflation rate in October was slightly higher than the median 1% increase forecast by 19 economists in a Bloomberg poll.

A poll by Reuters also predicted a 1% increase in CPI.

It is worth noting that Kuala Lumpur (1.3%), Penang state (1.3%) and Selangor & Putrajaya (1.2%) surpassed the national headline inflation of 1.1%.

All states registered an increase in the index of food and non-alcoholic beverages. The highest increases were recorded by Johor (2.5%), followed by Kuala Lumpur (2.4%), Penang (2.1%) as well as Selangor and Putrajaya (2%).

The expected increase in inflation rate in 2020 should not deter Bank Negara from prescribing additional monetary support.

Mohd Afzanizam Abdul Rashid