Consumer price index remains above 4%

Bank Negara had forecast the rate of inflation to pick up to 6.5%-7.0% in April and May 2021 before easing to below 5.0% in June 2021

KUALA LUMPUR: While the consumer price index (CPI) gain for May remained high at above 4%, the pace of growth is expected to ease in the second half of the year as the base effect tapers off.

The CPI, an indication of inflation for the period, rose by 4.4% in May from a year ago, mainly due to higher transport costs caused by the rebound in oil prices.

It was marginally lower from the 4.7% year-on-year (y-o-y) gain in April 2021. This is amid waning momentum in food prices as the government imposed price controls during the Eid al-Fitr festive month.

May’s CPI growth came in below analysts’s consensus estimate of 4.7%.

“Overall inflation was still supported by the low base effect, particularly in fuel, utilities and household equipment prices. To recap, last year’s May CPI was down by 2.9% y-o-y, ” said TA Securities in a report.

In the first five months of the year, the research house noted that the headline inflation rate increased by an average of 2.1% y-o-y.

TA expects the inflation rate to continue increasing in June 2021, albeit at a more moderate pace on assumptions of reducing transportation cost.

Meanwhile, Bank Negara had forecast the rate of inflation to pick up to 6.5%-7.0% in April and May 2021 before easing to below 5.0% in June 2021.

However, TA noted that this forecast was done before Malaysia went into the first phase of the National Recovery Plan which started in June 2021.

“For now, we are still maintaining our 2021 CPI forecast at 3.0% y-o-y, within Bank Negara’s wide projection of an increase of 2.5% y-o-y to 4.5% y-o-y, ” said TA.

On the other hand, PublicInvest Research expects the CPI to remain elevated until the fourth quarter of the year due to various factors, including a projected rally in oil prices and a favourable base advantage (June-Dec 2020 CPI average: -1.5%).

This, however, may be dampened by pockets of containment measures following the resurgence in Covid-19 cases.

“CPI is projected to rebound in 2021 to be driven by the turnaround in oil prices amid OPEC+ that may continue with its supply cut arrangements until 2022.

“This will be further pushed by a recovery in sentiment following the rapid Covid-19 vaccination programme that will gather in speed especially in the second half of the year, ” PublicInvest explained.