CPI expected to continue declining


  • Economy
  • Thursday, 21 May 2020

InflationApril21

PETALING JAYA: The country’s Consumer Price Index (CPI), which measures the national inflation rate, is expected to continue declining until the third quarter of 2020.

After two consecutive months of decline in CPI this year, price pressure could remain in the negative territory, even as the economy is gradually re-opened, according to Alliance Bank chief economist Manokaran Mottain.

“In March and April this year, the CPI declined largely due to the ultra-low petrol and diesel prices amid the movement control order (MCO). The weightage of transportation costs to the CPI is about 15%, hence the decline in fuel prices dragged down CPI significantly.

https://apicms.thestar.com.my/uploads/images/2020/05/21/690507.JPGhttps://apicms.thestar.com.my/uploads/images/2020/05/21/690507.JPG

“Moving forward, for the next several months, we will continue to see negative CPI. However, it will recover gradually as the effects taper down as fuel prices increase in line with the recovery in global crude oil prices.

“We are already seeing some rebound as the conditional MCO is now effective, ” he told StarBiz.

The Statistics Department announced yesterday that the CPI for April 2020 fell at a sharper rate of 2.9% year-on-year (y-o-y), which marked the lowest rate of change in headline inflation recorded since 2010.

An earlier poll by Bloomberg only expected a decline of 1.6% y-o-y.

According to chief statistician Datuk Seri Mohd Uzir Mahidin, (pic below) the CPI in April 2020 declined to 117.6 against 121.1 in the same month of the preceding year.

“The decrease in the overall index was driven by the decline of transport (-21.5%) and housing, water, electricity, gas & other fuels (-2.2%) which contributed 14.6% and 23.8% of overall weight, ” he said in a statement.

The lower average price of RON95 in April 2020 at RM1.27 per litre compared to RM2.08 in April 2019 contributed to the decrease of the transport and overall index.

In addition, the average price of RON97 decreased to RM1.57 per litre compared to RM2.71, while diesel declined to RM1.49 per litre from RM2.18 in April 2019.

However, food prices continued the upward trend. Food and non-alcoholic beverages continued to increase in April 2020 by 1.2% to 133.9 from 132.3 a year ago.

Food & non-alcoholic beverages contribute 29.5% of CPI weight.

As for miscellaneous goods and services, the segment rose by 2.3%, followed by communication (1.6%), health (1.2%) and education (1.2%).

For context, the CPI also declined by 0.2% y-o-y in March 2020. However, in February, the index rose by 1.3% y-o-y.

On a monthly basis, the CPI decreased 2.7% in April from March 2020.

Despite the CPI decline in March and April, Bank Islam chief economist Mohd Afzanizam Abdul Rashid said that Malaysia has not entered deflation yet.

“The core CPI still grew by 1.3% in April, similar to February and March.

“The country is considered facing deflation when the core rate is negative. This is because the core inflation rate takes out the volatile items, which in our case, is fresh food and administered prices such as fuel prices, ” he said.

Mohd Afzanizam pointed out that the drop in CPI has helped to improve households’ purchasing power, to some degree.

Commenting further on the decline in April, he said it was due to the 38.2% fall in the fuels and lubricants for personal transport equipment sub-index.

“This is very much in line with the reduced RON95 prices.

“There is also a steep decline in the electricity sub-index of 33.3% in April following the 15% discount on electricity charges as part of the economic stimulus package which will run between April and September this year, ” he said.

Moving forward, the subdued price pressures have created ample space for Bank Negara to undertake further monetary easing to spur economic growth.

Manokaran said the market expects one more round of rate cut of 25 basis points (bps), on top of the 100-bps already cut this year.

“However, I think at the current OPR of 2%, it is already low enough to support the economy, ” he said.

Meanwhile, Mohd Afzanizam said that while the scope for additional OPR cuts is visible, he believed the central bank would want to maintain the benchmark rate at the present level.

“The loan moratorium is huge, the way we see it, and based on the indication from Bank Negara, the take-up rate is high and therefore, the massive savings accumulated by the households and non-households could be channelled back into the economy.

“Perhaps, Bank Negara is adopting a wait-and-see strategy, ” he said.

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