PETALING JAYA: After six consecutive months of headline deflation, experts believe the country’s muted price pressures will likely continue for the rest of the year, mainly due to the sluggish crude oil prices.
Maybank IB Research’s economics team, led by Suhaimi Ilias, said inflation may only return in 2021 at 2%.
The research firm recently revised its consumer price index (CPI) forecast for 2020 downwards to negative 1%, as compared to negative 0.5% earlier.
In comparison, the country recorded an inflation rate of 1% and 0.7% in 2018 and 2019, respectively.
The CPI measures changes in the price level of a weighted average basket of consumer goods and services purchased by households.
An increase in the CPI is called inflation, while a decrease is deflation.
“We continue to expect a negative monthly inflation rate for the rest of the year amid the contraction in the real gross domestic product (GDP) and low average global Brent crude oil price, the year-on-year (y-o-y) effect of the 18% reduction in PLUS tolled highways since Feb 1, and electricity bill discounts from April 2020 for six months as part of government measures to assist households and businesses amid the recession triggered by Covid-19, ” it said in a note.
PublicInvest Research economist Rosnani Rasul also said Malaysia’s CPI may remain benign in the near term due to the continuing negative news flow on Covid-19.
“Limited upside on oil prices amid economic struggles especially in the advanced economies may also keep a lid on inflation.
“Economic uncertainties may push consumers to be cautious in spending, ” said Rosnani, who expects a headline deflation of 0.6% this year.In the first eight months of 2020, the CPI decreased by 1% y-o-y.
According to TA Securities Research, the CPI components that contributed to the fall include the transport index (-10% y-o-y), the clothing and footwear index (-1% y-o-y) and the housing, water, electricity, gas and others index (-1% y-oy).
TA Securities Research expects the CPI to continue falling in September by 1.1% y-o-y, following a 1.4% y-o-y drop in August that was slightly higher than market predictions of 1.3% y-o-y.
The sluggish CPI in August was weighed down by weak petrol and diesel prices as well as uncertain economic outlook.
Excluding the fuel factor, the CPI actually remained in the positive territory at 0.2%.
For the full-year 2020, TA Securities Research expects a headline deflation of 0.9% y-o-y.
“Despite low inflation pressures, we do not expect any changes in our overnight policy rate (OPR) – to remain at 1.75% until year-end.
“We opine that the cumulative 125-basis-point rate cut in the OPR this year is sufficient to provide accommodative monetary policy support for Malaysia’s economy, ” stated TA Securities Research.
Meanwhile, CGS-CIMB Research also expects the OPR to be retained at 1.75%, although it believes a pause in the OPR revision will remain until end-2021.
This is to allow the negative output gap to narrow and inflation to return to levels consistent with price stability.
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