December CPI comes in lower

PETALING JAYA: Inflation for December 2014 came in lower than expected, rising 2.7% year-on-year while for the full year, inflation rose 3.2%. Economists had expected a median 2.8% rise in the consumer price index (CPI) in December.

According to the Statistics Department, the rise in prices in December was led by a 10.6% jump in the alcoholic beverages and tobacco component of the CPI.

JF Apex Research said the component maintained its expansion this month following moves by tobacco companies to raise prices of cigarettes by RM1.50 a pack on Nov 5 due to an increase in excise duty.

AllianceDBS Research said it expected some mixed signals on price pressures.

It said that floods in key agricultural states such as Kedah and Kelantan would have affected some supplies of agro produce, pushing up food prices.

Meanwhile, the transport sector’s inflation is expected to slow further following the cost pass-through of cheaper retail sale of fuel in January (RON95 and RON97 fell 35 sen per litre each while diesel fell by 30 sen).

Barclays analyst Rahul Bajoria said inflationary pressures were likely to decline considerably in Malaysia in the coming months, but it was unlikely to affect the monetary stance.

In comments recently, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz emphasised that monetary policy was “highly accommodative”, according to Bloomberg.

Barclays said Bank Negara was likely to view the recent bout of disinflation as supporting private consumption, and was likely to mark down the inflation projections from the Government’s March forecast of 4% to 5%.

It lowered its 2015 inflation projection to 2.6%, considering the fall in retail pump prices in January and beyond.

It expected the central bank to keep rates on hold through most of 2015, and forecast only one 25 basis point rate hike in the fourth quarter of 2015, after the US Federal Reserve started its own rate hike cycle.

It said inflationary pressures were likely to decline considerably in Malaysia in coming months, but it was unlikely to affect the monetary stance and that services inflation fell marginally to 2.9%. Inflation in 2014 averaged 3.2% compared with 2.1% in 2013.