MIDF Amanah Investment Bank Bhd Research expects the country’s inflation rate to increase to 2.4% in 2020, mainly due to the government’s petrol subsidy policy, which will start in January.
The research house expects headline inflation to be within 1.5% to 2.5% in 2019, compared to 1% in 2018, due to the recovery in global oil prices.
“We anticipate inflationary pressure to surge to 2.4% yoy in 2020 (2019e: 0.6% yoy) as the targeted fuel subsidy will kick off on Jan 1, 2020, causing the price of RON95 to float according to the market.
“Inflationary pressure from transportation and fuel-related items is likely to increase in line with our forecast of Brent crude oil price at US$65 per barrel in 2020, higher than US$63 per barrel estimated for this year. Inflation fell below 1%,” it said in a Dec 20 note.
In addition, the research house said food component is expected to provide upside pressures on overall inflation in 2020 through imported inflation as Malaysia is a net importer of food and weaker ringgit will result in the items to be more expensive.
Besides that, floating RON95 price would have spillover effects on food.
Nevertheless, the latest producer price index (PPI) number, three to six months leading indicator of price changes at the consumer level suggests that Malaysia’s cost-push inflation will stay low for 4Q19 and early 2020, it said.
“Hence, we foresee Bank Negara Malaysia (BNM) to make a rate cut in 1Q20 in response to a slowing economy while the environment is still conducive as cutting rates generally increase inflation,” said the research house.
It noted that headline inflation edged down to 0.9% yoy, the lowest in six months as prices of food & non-alcoholic beverages, the biggest component of consumer price index (CPI), increased at a softer pace of 1.5% yoy (Oct 19: 1.5% yoy). In addition, inflation of transport fell slightly more to -2.4% yoy (Oct 19: -2.3% yoy).
Moving forward, MIDF Research anticipated inflationary pressure for all states to increase gradually in 2020.
“KL, Penang, Selangor and Putrajaya recorded inflation above the national average with KL chalking up the highest rate at 1.4% yoy. Similarly, these states also recorded the highest inflation in F&B with Selangor and Putrajaya recording the highest rate at 2% yoy.
“The lowest overall inflation was observed in Sabah, Sarawak and Terengganu at 0.3% yoy.”
Nevertheless, the inflation rate for Sabah and Sarawak could be relatively low due to the government’s decision to continue the price cap for RON95 and diesel for these states.” – Dec 20, 2019
