This article first appeared in The Edge Financial Daily on December 21, 2017

KUALA LUMPUR: Malaysia’s inflation rate, measured by the Consumer Price Index (CPI), moderated to 3.4% in November 2017, from 3.7% in October and 4.3% in September. The moderation is in line with expectation, given a higher base effect from a year earlier as a result of the cut in cooking oil subsidy.

Department of Statistics Malaysia’s (DoSM) latest data show the CPI was up 3.4% year-on-year (y-o-y) in November to 120.8, from 116.8 a year ago. The latest reading is also the lowest in four months since inflation came in at 3.2% in July 2017.

Transportation showed a 10.8% increase in inflation rate, according to DoSM. “The average price of a litre of RON95 petrol was RM2.30 in November 2017 compared with RM1.95 in November 2016. As for RON97, the average price increased to RM2.59 in November 2017 compared with RM2.30 in November 2016,” it said. “Fuels and lubricants for personal transportation equipment accounted for 7.8% of the CPI weights.”

In a note yesterday, MIDF Research said the brent crude oil price rose 36.7% y-o-y in November to US$63 per barrel compared with US$46.1 in the same month last year.

“Hence, the differential translates into higher fuel pump prices in November. Looking ahead, the average brent oil price and [that of] RON95 for the first three weeks of December registered at US$63.5 and RM2.28 respectively.

“Therefore, we can expect prices of fuel-related items to record strong expansion, especially on a monthly basis. At this juncture, we can anticipate December’s inflation rate to remain above 3% with fuel-related items remaining as dominant driving factors,” the firm said.

CIMB Research expects headline inflation to moderate in 2018 at 2.9% versus 3.8% in 2017, as retail fuel prices should remain broadly stable in the year ahead.

In a note yesterday, CIMB said it expects fuel inflation to increase in December to around 19.3% y-o-y compared with 17.5% in November, before easing in the first quarter of 2018 (1Q18) when it comes up against a higher base as fuel prices were adjusted higher by 20.4% in January to February 2017.

“Air transportation prices are set to rise in December as AirAsia has implemented a RM3 charge ahead of an upcoming increase in passenger service charges at klia2 to RM73 from Jan 1, 2018,” said CIMB Research.

The index for food and non-alcoholic beverages, accounting 30.2% in the CPI weights, increased 4% in November 2017. Core inflation rose 2.2% in November 2017 from that in November 2016. The core inflation excludes most volatile items such as fresh food, as well as administered prices of goods and services.