PETALING JAYA: After facing monthly deflation for nearly a year, Malaysia is expected to feel inflationary price pressure once again as fuel prices increase and demand gradually returns.
Hong Leong Investment Bank Research said headline inflation is expected to turn positive starting March 2021 onwards.
Apart from the low base effect due to low crude oil prices in March last year, rising domestic fuel prices are also anticipated to lift inflation growth.
“Despite the lower ceiling petrol price, we maintain our consumer price index (CPI) forecast at 2.5% year-on-year (y-o-y) due to upside risk from global food inflation, ” it said in a note.
In simple terms, a rise in CPI value against the previous year is referred to as inflation, while a decrease is referred to as deflation.
In January 2021, the country’s deflation rate fell to its lowest level in 10 months.
Malaysia’s CPI decreased by 0.2% y-o-y in January 2021 as compared to a decline of 1.4% in December 2020.
MIDF Research said the headline deflation rate in January 2021 was close to its forecast of 0.5% y-o-y.
The significant improvement could be attributed to two key sub-indices of CPI namely, housing and utilities as well as transportation, which recorded substantial lower fall in prices for January 2021.
Collectively, both sub-indices contributed a weightage of 38.4% in the CPI.
MIDF Research has maintained its inflation forecast at 1.8% for 2021.
“Inflationary pressure was largely muted in 2020 due to weak demand and government rebates through the electricity discount bills.
“For this year, however, prices are expected to increase on the back of higher crude oil prices and returning demand as the economy recovers, also facilitated by a low interest rate environment.
“Vaccine rollout in the country will likely improve sentiments and encourage spending, moving forward, ” it said.