Headline inflation seen moderating to 2.6% this year

PETALING JAYA: Malaysia’s headline inflation is expected to moderate to 2.6% this year amid unfavourable base effects, according to MIDF Research.
In a note today, the firm Research said this is also supported by inflation rate for the first quarter of this year which registered at 1.8% compared to 4.2% in the same period last year.
Additionally, the research house said it expects inflationary pressure particularly from fuel-related items to soothe, consistent with steady gradual rise in global commodity prices on top of pass-through effect from a strengthening ringgit.
“As inflationary pressure remains steady, we anticipate Bank Negara to maintain its current monetary policy with no more hikes in OPR (overnight policy rate) for the rest of 2018 excepting any pleasant upward surprises in domestic economic growth,” it added.
Malaysia’s consumer price index (CPI) rose 1.3% in March, which is its slowest pace since July, thanks to a drop in the cost of transport.
The Statistics Department said today the overall index was also affected by drops in the cost of clothing and footwear, and communication.
The CPI for the first three months period increased by 1.8% compared with the same period last year.
Among the major groups which recorded increases were the indices for food and non-alcoholic beverages (2.8%), furnishings, household equipment and routine household maintenance (2.1%), health (2%), housing, water, electricity, gas and other fuels (2%), restaurants and hotels (2%) and education (1.1%).
Nevertheless, MIDF Research said it foresees inflation across all states will moderate below 3% in 2018 amid unfavourable base effects and moderating pace of fuel-related item prices.
Meanwhile, FXTM research analyst Lukman Otunuga said the slower-than-expected inflation figures in March suggest that inflationary pressures could take time to build up momentum this year.
“On a positive note, unemployment rate fell to 3.3% in February, down 0.1% from the previous month. Repeated signs of Malaysia’s labour market strengthening could support the bullish sentiment towards Malaysia’s economy,” he said.
In addition, he said, the ringgit is likely to remain supported by the growing confidence over Malaysia’s economic landscape.
“The US dollar/ringgit has scope to test 3.8850 in the near term if the dollar remains depressed,” he added.