Lower petrol prices in Feb to impact Malaysia's inflation pace

The Statistics Department will be releasing the consumer price index tomorrow showing the expected drop in headline inflation following the decision to lower petrol prices on Feb 1.

PETALING JAYA: The rise in prices for February is likely to be slower due to the drop in petrol prices but costs will start to creep up again in March given the rise in petrol prices in the same month.

The Statistics Department would be releasing the consumer price index tomorrow showing the expected drop in headline inflation following the decision to lower petrol prices on Feb 1.

Ahead of the release, a survey of economists showed a median estimate of just 0.2% inflation year-on-year compared with January’s 1%.

Economists pointed to the drop in petrol prices in February as the main reason for the slower inflation pace. Prices for RON95 was fixed at RM1.70 per litre in February while RON97 was fixed at RM2 after global crude prices plunged on a combination of oversupply and lack of demand.

However, petrol prices went up in March following a pause in the drop of crude prices with prices for RON95 and RON97 fixed at RM1.95 and RM2.25 a litre respectively. Crude prices have since fallen again, with US benchmark WTI closing at US$43.46 a barrel on Tuesday and global crude benchmark Brent closing at US$53.51.

Economists expect inflation to ease in the first quarter largely due to the drop in global crude oil prices before accelerating again following the implementation of the goods and services tax (GST).

“Given declining oil and utility prices as well as the Government’s efforts to lower prices of goods on March 1, we expect inflation to ease in the first quarter, before accelerating again as a result of GST in April,” CIMB Investment Bank Bhd economist Julia Goh said.

Bank Negara expected headine inflation to be below the historical average at between 2% and 3% this year versus the earlier 2.5% to 3.5% official projection from the Finance Ministry.

Goh noted that inflation should rise in the second quarter albeit gradually given the longer list of tax-exempt goods. Other factors that could impact inflation would be global crude oil prices staying above US$50.

“Inflation may continue to track moderately higher, depending on the path of fuel prices in the second-half. We project inflation of 2.7% for 2015 (versus 3.2% in 2014),” Goh said.

Admittedly, there would be some cost-push price effects that economists expect consumers to feel from April but Alliance Research chief economist Manokaran Mottain said the high-base effect of inflation in the first-half of last year would mitigate the short-term inflation growth rates.