PETALING JAYA: The rate of deflation is expected to continue in the near term, led by low crude oil prices and policy intervention.
Inflation has fallen sharply due to the economic fallout from the coronavirus (Covid-19) pandemic as consumer demand slumped and global crude oil prices crashed.
The country’s consumer prices recorded four straight months of decline including June with a risk of continuous deflation in the coming months due to the prolonged slump in economic activity caused by the Covid-19 crisis that has depressed consumption.
Malaysia’s inflation, as measured by the consumer price index (CPI), declined 1.9% in June 2020 from a year earlier, led by lower fuel prices.
Statistics Department chief statistician Datuk Seri Mohd Uzir Mahidin said the decrease in the overall index was driven by the decline in transport (-14.3%), housing, water, electricity, gas and other fuels (-2.6%), clothing and footwear (-1.1%) and furnishings, household equipment and household maintenance (-0.2%) which contributed 45.7%to overall weight of the basket that makes the CPI.
However, food and non-alcoholic beverages continued to creep up as there could have been supply chain disruptions due to the movement control order (MCO).
According to data by market research and a consulting firm Ipsos Malaysia, about 64% of Malaysians felt they were spending more on food, groceries and household supplies since the Covid-19 crisis.
“Our data also shows that the priority spending of households since Covid-19 has shifted from apparel and transportation to food, healthcare and utilities, ” the company said in a statement, quoting its survey study.
The study was conducted between May 22 and June 5 among 17,997 adults across 16 countries, of which 500 of them were from Malaysia.
Meanwhile, according to the Statistic Department, excluding fuel prices, the CPI rate rose 0.2% in June compared with 0.1% in May 2020.
CPI without fuel covers all goods and services except unleaded petrol RON95, unleaded petrol RON97 and diesel.
Socio-Economic Research Centre (SERC) executive director Lee Heng Guie expects the contraction in consumer prices to continue due to low oil prices, government intervention such as electricity subsidy and tax exemption for purchasing cars, to ease the impact of the Covid-19 fallout.
“The continuous depressed inflation rate is likely to continue in the near term but it’s not a growing concern as it is not a broad base.
Only 27.3% of the items in the CPI basket are decreasing.
“We do see that consumer demand is softening due to the impact of Covid-19, but it is expected to pick up by end of this year, ” he told StarBiz.
Meanwhile, Alliance Bank chief economist Manokaran Mottain expressed his optimism that economic growth will rebound despite the contraction expected in the second and third quarter due to Covid-19 crisis.
“We are already seeing consumer demand picking up as more people are going back to work and economic activity starts to recover, ” he said.
The World Bank has projected that Malaysia’s economy will contract by 3.1% in 2020 due to a sharp slowdown in economic activity caused by Covid-19 and the measures to contain its spread.
It expects growth to resume in 2021 with the economy expanding by 6.9% as the outbreak eases.
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