August CPI up 0.2% year on year

> Lowest rate of increase in 42 months, on tax holiday and stable fuel prices

PETALING JAYA: The consumer price index (CPI) rose 0.2% year-on-year in August 2018, registering the lowest rate in 42 months, on the back of tax holiday as well as stable fuel prices.

This slowdown movement was due to the impact of cost of fuels which caused the index for transport increase 2.1% as compared to 6.7% recorded in July 2018, the Statistics Department said in a statement yesterday.

On a monthly basis, CPI increased 0.2% as compared to July 2018, while CPI for the first eight months registered an increase of 1.3% as compared to the same period last year.

Research houses expect Malaysia’s inflation to remain moderate for the rest of the year, suggesting Bank Negara Malaysia (BNM) to keep its policy interest rate at 3.25% this year.

FXTM global head of currency strategy & market research Jameel Ahmad said the latest inflation data has bucked the trend of rising inflationary pressures across emerging markets following a period of prolonged strength in the US dollar.

“This highlights no real need for BNM to be under pressure to change its monetary policy outlook,” Jameel added.

He said the overall data also suggests that the Malaysian economy is not under pressure from increased inflationary pressures, which might boost some investor sentiment towards Malaysia as most emerging markets are coming under increased inflationary pressures with a strong US dollar following trade war tensions.

“It is of course possible that the reason behind the weak inflationary pressures for Malaysia could be the removal of the goods and services tax, but if anything, this has benefited Malaysian consumers as a whole and can be seen as helping the economy over the past couple of months because consumers received an unexpected increase in disposable income,” Jameel said.

Nevertheless, MIDF Research said it anticipates Malaysia’s inflation to inch up in the coming month buoyed by the reintroduction of sales and services tax.

Amid higher base effects, MIDF said it foresees headline inflation rate to average at 1.3% this year compared to 3.8% in 2017, supported by lower inflation rate for the first eight months which registered at 1.3% compared to 3.9% in the same period last year.

MIDF also said it believes that inflationary pressure mainly from fuel-related items to calm, consistent with gradual rise in global commodity prices on top of pass-through effect from a strengthening ringgit and subsidy of domestic fuel price.

“As inflationary pressure remains benign, we anticipate BNM to maintain its current monetary stance for the rest of 2018 barring any pleasant surprises in domestic economic growth,” MIDF added.

Other than transport group, Statistics Department said that the increase of price in housing, water, electricity, gas and other fuels (2%), education (1.1%), restaurants and hotels (0.7%) and food and non-alcoholic beverages (0.4%) also contributed to the increase of CPI August 2018.

In terms of overall CPI, the department said, three states surpassed the national CPI rate of 0.2% recorded in August 2018 as compared to August 2017.

The states were Negri Sembilan (0.6%), Wilayah Persekutuan Kuala Lumpur (0.5%) as well as Selangor and Wilayah Persekutuan Putrajaya (0.3%). Pulau Pinang and Johor showed the same rate as the national CPI.

Meanwhile, the department said the higher increase in the index for food and non-alcoholic beverages was reflected in most states in Malaysia.

The index for food and non-alcoholic beverages rose 2.9% in Wilayah Persekutuan Kuala Lumpur and 0.7% in Sarawak, it added.