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Malaysia inflation at 3.7% higher than expected: Research House

Inflation – calculated as the Consumer Price Index (CPI) – grew at more than 3.5% year on year in December last year (y-o-y), and the result was above JF Apex in-house expectations of 3.1%, but the research house said it was within consensus of over 3.5%.

“The higher-than-expected result was underpinned by higher growth in Food & Non-Alcoholic Beverages, Transport and Education indexes. Besides, on monthly basis, CPI posted a small growth of +0.1% m-o-m growth as compared to +0.7% m-o-m growth in last month.

“As for the whole year 2017, inflation increased to +3.7% y-o-y as compared to +2.1% y-o-y in 2016. The result was slightly below our in-house expectation of +3.8%.

The ringgit is rising against major currencies on the back of strengthening oil prices and this is impacting the local transportation inflation index

“The massive growth in 2017’s inflation was buoyed by rise in Food & Non-Alcoholic Beverages index, registering an increase of +4.0% y-o-y. The increase was devoted by index for Food Away From Home (+4.8%) and Food At Home (+3.7). Besides that, Transport index also contributed to the hike for 2017’s CPI inflation with +13.2% y-o-y growth,” said JF Apex.

The research house also said the transport component grew higher at +11.5% y-o-y in Dec’17 as compared to +10.8% y-o-y in Nov’17.

“However, the Transport index on monthly basis decreased to -0.7% m-o-m (v.s Nov’17: +3.3%), offset by easing in Dec’s retail fuel prices.

“Transport inflation for 2017 posted a higher growth of +13.2% y-o-y as compared to -4.6% y-o-y in 2016. The soaring growth in Transport component in this year was mainly due to lower base in 2016,” it said.

Besides, other key components that lifted December’17 inflation are:-

  • Education :                                          +1.7% y-o-y (vs +1.5% in Nov’17)
  • Non-Food :                                          +3.2% y-o-y (vs +3.2% in Nov’17)
  • Housing, Water, Electricity :              +2.2% y-o-y (vs +2.2% in Nov’17)

Flattish growth in Food inflation

Food and Non-Alcoholic beverage components which account for 30.2% of CPI components posted a small growth 4.1% y-o-y in Dec’17 as compared to +4.0 in last month.

The flattish growth in this component was mainly driven by passive growths in sub-group components such as Fish & Seafood.

Foresee 3.2% inflation for 2018

JF Apex said inflation is expected to remain high, but moderate to +3.2% in 2018 as global crude oil prices to stabilize further amid current global economic condition.

Besides that, appreciation in Ringgit towards US dollar could curtail our retail fuel prices thus reducing transport inflation.

“Despite the impact of removal of cooking oil subsidies subsides (which was adopted in end 2016), we still cautious on gas tariff hike in this year which will render an impact to our inflation rate. On the other hand, we reckon that BNM will increase OPR by 25bpts for 2018 amid robust economic growth and manageable inflation rate for this year.” it said.

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