Mier forecasts 3.8% inflation, weak ringgit one reason

Higher pressure: Zakariah says there is an uptrend in inflationary pressure in the first six months. With him at the briefing is senior research fellow Zulkiply Omar (left).

KUALA LUMPUR: Malaysia is projected to record a higher inflation of 3.8% this year, primarily attributed to a weak ringgit and rising transportation-related costs, according to the Malaysian Institute of Economic Research (Mier).

Mier executive director Zakariah Abdul Rashid said the think-tank’s higher inflation projection was due to the upward pressure on prices as seen in the first half of the year. He expects the inflationary pressures to continue for the rest of the year.

To note, the country registered an overall inflation rate of 2.1% both in 2015 and 2016.

“When we look at the first six months of 2017, we noticed an uptrend in inflationary pressure. Thus, the overall inflation rate for 2017 will surely be higher than the 2.1% registered a year earlier.

“We expect inflation for this year to increase significantly to 3.8% due to the depreciation of the ringgit and high transportation costs. While prices of crude oil has come down, we must also understand that since Malaysia is a net importer of petroleum products, we end up paying more due to the weak ringgit,” he told reporters at Mier’s 32nd National Economic Briefing yesterday.

However, the economic think-tank said inflationary pressure was expected to recede in 2018, with the inflation rate for the year hovering around 3%.

With regard to Malaysia’s growth outlook for 2017, Mier has revised its gross domestic product (GDP) growth projection upward to 4.8%, in contrast to its earlier estimate of 4.5%.

“Our upward projection of GDP growth was done after we incorporated Malaysia’s first quarter GDP growth of 5.6%, into our calculations.

“Apart from that, the recent developments related to our national trade have also influenced the revision by Mier.

“For the past few months, our trade performance has been very encouraging, with both exports and imports increasing. On top of that, our trade balance still registers surplus, with total exports exceeding imports.

“As for 2018, Mier projects a slightly stronger GDP growth, ranging between 4.7% and 5.3%,” said Zakariah.

In the latest update to its World Economic Outlook, the Interna-tional Monetary Fund (IMF) has upped Malaysia’s GDP growth projection for 2017 to 4.8% from 4.5% previously due to the country’s savvy economic management and commendable monetary policies by Bank Negara.

The Asian Development Bank (ADB) also upgraded its 2017 growth outlook for Malaysia to 4.7% from 4.4%, and indicated that the two-year slowdown in economic growth is likely to have bottomed out last year.

Economic growth projections by Mier, IMF and ADB are in tandem with the official guidance from the government, ranging between 4% and 5%.