KUALA LUMPUR (May 13): While headline inflation is expected to turn negative for 2020, Bank Negara Malaysia governor Datuk Nor Shamsiah Mohd Yunus said the risk of deflation is limited. 

She said for deflation to happen, the country would have to experience a prolonged and broad-based decline in prices, coupled with a collapse in demand.

“However, so far, we have not seen a widespread decrease in prices across goods and services,” Nor Shamsiah said in a virtual media briefing today. 

“Only around 20% of items in the CPI (consumer price index) basket exhibited price decline during the [first] quarter and core inflation is also expected to remain positive,” she said.

“Overall, we expect prices to be supported as demand conditions gradually improve when economic activities resume. As it is, we saw in the first quarter this year that private consumption has been strong,” she added.

Headline inflation remained modest in the first quarter, ranging at 0.9%, said Nor Shamsiah, adding that inflationary pressures in 2020 are expected to be muted mainly due to the much lower global oil and commodity prices.

For the full year, the governor said the average headline inflation is likely to turn negative largely due to the projection of significantly lower global oil prices. 

“Its (headline inflation) trajectory will be dependent on global oil and commodity price developments as well as evolving demand conditions,” she said.

Underlying inflation is also expected to be subdued reflecting projections of weaker domestic growth prospects and labour market conditions, she added.