KUALA LUMPUR: The country’s inflation is expected to have bottomed last month at a negligible 0.1% year-on-year (y-o-y) and is expected to pick up pace due to higher oil price in March, and the implementation of the goods and services tax (GST).
“This (February’s inflation rate) would be the lowest, indeed the major driver was because of the low oil prices, yet we should not forget that last year we had a higher base as well,” CIMB Research economist Julia Goh told The Edge Financial Daily.
In February 2015, the consumer price index (CPI) stood at 109.9 points compared with 109.8 a year ago.
According to the Department of Statistics Malaysia (DOSM)’s press statement on the CPI last Friday, the transport component, which fell 11.8% y-o-y, remained as the major driver that dragged down February’s CPI to 0.1%, which is the lowest since November 2009’s -0.1%.
“Other decreases were communications, and clothing and footwear by 0.9% and 0.6%, respectively. These three groups accounted for 24% of the overall weight,” DOSM said.
Goh said higher fuel prices in March would stimulate the CPI for the month, while April’s reading is expected to be driven by GST-led inflation.
When contacted, JF Apex Research’s economist Norsyafina Mohamad Zubir concurred, saying she is adjusting her inflation forecast for March to 1% from 1.8%.
In her research note last Friday, she said the adjustment was due to February’s inflation which came in below expectation, coupled with the reduction in electricity tariff by 5.8%, or 2.25 sen per kilowatt hour, in Peninsular Malaysia from March 1.
Inflation of 0.1% in February was lower than economists’ consensus expectation of 0.2%.
It was also lower than January’s 1%.
RHB Research Institute’s Peck Boon Soon in a note said that despite the sharp slowdown in inflation in February, it will unlikely fall into deflation, given that retail fuel prices were raised in March while the GST will be implemented on April 1.
“The upward price pressure will likely be compounded by taxi and express bus fare increases. Still, it could be subdued by a reduction in retail petrol and diesel prices again, if crude oil price continues to stay low at the current level. As a whole, we expect inflation to pick up to 3.6% in 2015, from 3.2% in 2014,” he wrote.
Asked if Malaysia faces the threat of deflation in the short term, an economist who declined to be named said that the probability is very low.
“In the CPI basket, we can see that food-related components are holding up quite well in February, it was the non-food components that saw an apparent drop, which is transport, but in March, our fuel price have gone up 12% to 15%,” he said when contacted.
Concerning the impact of the recent hike in taxi and express bus fares, Goh does not see a significant impact as their weightage in the CPI basket is low.
Transport component’s weightage in the CPI basket is 14.92%. Though significant, it should be noted that road transport services merely contribute 0.69% to this.
“The steep petrol price cuts in Jan-Feb, coupled with a high base effect from last year, have lowered our average inflation projections. We estimate average inflation of 2.7% in 2015 compared with 3.2% in 2013. This is within official estimates of 2% to 3%,” said Goh in her report on the CPI last Friday.
Meanwhile, Norsyafina has maintained her inflation forecast for 2015 at 3.8% in view of lower retail fuel prices from “managed float system”, and postponement of the electricity tariff and gas price hikes for the industrial sector for 2015.
This article first appeared in The Edge Financial Daily, on March 23, 2015.