Thursday, 24 May 2018

(NST) CPI in April driven by stable fuel prices, higher base

KUALA LUMPUR: Lower-than-expected consumer price index (CPI) at 1.4 per cent in April most likely driven by stable fuel prices and a higher base a year ago.

Kenanga Investment Bank said CPI was lower than Bloomberg market consensus and house estimate of 1.6 per cent year-on-year.

“The index remained unchanged on a monthly basis. Meanwhile, core inflation, excluding food, expanded to 1.5 per cent year-on-year.

“We believe that the lower-than-expected CPI was driven by stable fuel prices and a higher base a year ago,” it said in a note today.

The research firm also revised its full year CPI growth forecast to 2.3 per cent from 2.8 per cent.

“We expect the Ringgit to remain relatively stable despite the post election uncertainty supported by higher global oil price due to tensions in Iran and OPEC supply disruptions.

“We expect inflation to moderate further in 2Q18 as the economy slows and the stable retail fuel prices which have been capped at RM2.20 per litre and RM2.47 per litre respectively for RON95 and RON97 since 22 March 2018 despite higher crude oil prices.

“The new government’s pledge to zero rate the GST from 6 per cent which takes into effect on 1 June would also help to pin down cost push inflation,” it added.

Meanwhile, Public Investment Bank said several factors will keep inflation at bay this year, including the fiscal measures to control pump prices and the abolishment of GST.

“Information is scarce at this juncture on the mechanics of this fiscal approach but at macro level this may entail neutralizing the impact of high cost of living.

“As much as this fiscal approach is lauded and should be good for consumer sentiment, uncertainties in near-term economic outlook may see consumers being careful in spending especially on the big-ticket items.

“One way or another, the changing of dynamics in Malaysia’s economic landscape may still result in inflation remaining tepid for the whole year,” it stated.

The firm, while concerned that CPI remains uninspiring, was comforted by the fact that there has been intervention by the central bank to boost demand for goods and services.

The research firm noted that this is evident in the sharp M3 growth (broad money supply) in March.

It jumped 5.9 per cent YoY, 110 basis points higher than in February, suggesting that weak CPI is a nagging issue as Malaysia can slip into a deflationary mode if there is no intervention.

“As the impact of M3 growth lags by a few months before reaching the real economy, we envisage that M3 growth may remain elevated from now on. Our full-year CPI projection of 1.8 per cent (2017: 3.7 per cent) remains unchanged,” it added.

Malaysia’s CP), which measures headline inflation, increased by 1.4 per cent in April 2018 compared with the corresponding month last year.

The CPI for the January-April 2018 period also increased by 1.7 per cent year-on-year.