Inflation continues to ease for the third straight month

KUALA LUMPUR: Inflation has continued to ease as the Consumer Price Index (CPI) declined for the third straight month to 3.6 per cent in June after peaking at 5.1 per cent in March.

According to an economic viewpoint report by the research arm of Kenanga Investment Bank (Kenanga Research), the decline this month was within the research arm’s expectations but below market consensus expectations of a 3.9 per cent CPI.

The further easing was mainly due to lower fuel prices pushing down transportation costs and a fading low base effect during the month.

“As expected, transportation index, comprising 13.7 per cent of headline CPI, continued to fall on a y-o-y basis for the third consecutive month since April.

“The transportation sub-index grew by just 10.5 per cent, reaffirming our position that growth in the transportation index has long peaked in March where the index spiked 23.0 per cent.

“On a m-o-m basis, the transportation index likewise fell 2.4 per cent stemming from continuous decline in retail fuel prices,” reported Kenanga Research.

Looking at other goods, food which comprises 30.2 per cent in headline CPI, saw a small acceleration of 0.4 per cent m-o-m due to Ramadan and Eid al-Fitr celebrations.

Meanwhile, housing, water, electricity, gas and fuel prices which comprise 23.8 per cent of headline CPI was unchanged at 2.2 per cent y-o-y. The index was flat m-o-m.

Looking ahead, the research arm of RHB Bank Bhd (RHB Research) anticipates that headline CPI to continue easing to 2.8 per cent yo-y in the second half of the year – averaging to 3.5 per cent in 2017, up from 2.1 per cent in 2016.

“This is on account of generally higher fuel prices compared to last year, the removal of subsidies on prices of selected administered goods, higher business costs and weak ringgit translating into higher import prices,” justified RHB Research.

On the other hand, Kenanga Research is expecting 2017 inflation to be a higher figure of 4.1 per cent due to demand-side factors.