Inflation up 3.5% on higher fuel costs

KUALA LUMPUR: Malaysia's inflation rate rose 3.5% in December 2017 in line with expectations, as transport costs climbed on higher fuel prices but for 2018, analysts are expecting the impact to taper off and the inflation rate to decline.

The Statistics Department reported on Wednesday that overall index for inflation, as measured by the consumer price index (CPI) rose by 3.5% to 120.9 in December 2017 from 116.8 in 2016. Among the major groups which recorded increases were the indices for transport (+11.5%), food & non-alcoholic beverages (+4.1%).

On a monthly basis, the CPI increased 0.1% in December 2017 from the 3.4% in November.

Nomura Global Research said the latest data brought full-year 2017 inflation to 3.7%, up from 2.1% in 2016 and near the top end of Bank Negara Malaysia’s (BNM) 3%-4% forecast range. 

“We expect inflation to decline to 2.7% in Q1 2018 because of base effects from the substantial fuel price hikes last year before reversing in Q2 and averaging 3.2% for the full year,” it said.

It continues to expect Bank Negara to raise its policy rate by 25basis points on Thursday to 3.25%, “which we believe would be intended more to reduce the pace of policy accommodation and prevent a build-up of financial imbalance risks”. 

However, the research house thinks Bank Negara will likely pause from there given the elections – which it expects to be called sometime in late April to early May  and the need for the government to run tight fiscal policy in H2 2018 to meet its full-year deficit target. 

It said a relatively stable core inflation also suggests there is little need for a more aggressive rate hiking cycle.

To recap, the Statistics Department said the index of transport group showed a significant increase of 11.5% on a year-on-year basis in December 2017, after rising 10.8% in November 2017. 

“The average price of one litre of RON95 petrol was RM2.27 in December 2017 as compared to RM1.90 in December 2016. As for RON97, the average price increased to RM2.55 in December 2017 as compared to RM2.25 in December 2016. 

“Fuels & lubricants for personal transport equipment accounted for 7.8% of the CPI weights,” it said.

“The index for food & non-alcoholic beverages which accounted 30.2% in the CPI weights, increased 4.1% in December 2017.