KUALA LUMPUR: AllianceDBS Research expects mixed signals in price pressure in the near term, with food prices likely to go up due to floods in the East Coast and transport inflation easing on cheaper pump prices.

In a report yesterday, the firm said it is maintaining its full-year 2015 inflation target at 4% with upward bias, while continuing to monitor the downside risks to its gross domestic product (GDP) growth target of 5%.

AllianceDBS economist Manokaran Mottain noted that inflation in December eased to 2.7% from 3% a year ago, which was largely in line with Bloomberg’s consensus estimate of 2.8%. He sees signs of price pressures easing during the month, as indicated by the month-on-month fall in prices. Notably, transport-sector inflation eased slightly to 4% (November: 5%).

Looking ahead, Manokaran said the flood situation in key agricultural states such as Kedah and Kelantan would have affected supplies of some agricultural commodities, pushing up food prices. He expects transport-sector inflation to slow down further, following the further reduction of fuel prices in January (price for RON95 and RON97 fell 35 sen per litre each; diesel fell by 30 sen).

“Overall, full-year 2014 inflation increased to 3.2% (2013: 2.1%) and we expect inflation this year to trend even higher averaging at 4% in 2015 on the back of cost-push inflation, largely driven by the goods and services tax implementation.

“Keep in mind that Bank Negara Malaysia expects inflation to taper by end-2015 and the central bank will target a long-term inflation rate of 3% from 2016 onwards,” Manokaran said.

This article first appeared in The Edge Financial Daily, on January 22, 2015.