Posted on 28 Jan 2013
Malaysia's consumer price index (CPI) is expected to increase by between 2% and 2.5% this year, mainly because of the implementation of minimum wage policy and subsidy rationalisation programme in 2H2013.
“Resilient domestic demand could possibly facilitate partial transfer of higher cost to consumers particularly by industries that are heavily reliant on foreign labour,” said Hong Leong Research.
It forecast the first half of 2013 (1H13) would have a mild inflation trend at about 1.6% on-year and rising to 2.4% on-year in the second half.
The government reported that the CPI for last year averaged by 1.6% in comparison to 3.2% in 2011. The CPI for December 2012 increased to 1.2% from a year ago, the slowest pace within a three-year.
Alliance Bank Malaysia research chief economist, Manokaran Mottain said moving ahead, “we expect a two-speed consumer prices movement”.
He told Starbiz that while expecting a slower pace of inflation in the first half-year, potential subsidy cuts after the post GE 13 could likely pressure a reversal in price pressures in 2H13.
“Overall, we expect inflation to accelerate to 2.5%, aided by a recovery in demand in later part of this year, both internally as well as externally,” he said.
He said a recent World Bank forecast further softening in global commodity prices in 2013 on extreme weather conditions and sluggish economic growth in major parts of the advanced economies.
Although the U.S. and Chinese economies look to remain on track for slow growth, Europe's debt problem is still seen weighing on economic expansion, reducing the appetite for commodities, according to the World Bank report. Food prices should drop by 3.2%, led by a sharp downturn in edible oils, such as soy oil or palm oil.
Meanwhile, Bank Negara Malaysia's monetary policy committee, which meets this week, is scheduled to announce the overnight policy rate (OPR) on Jan 31 and analysts expect the OPR to likely to remain at 3%.
Manokaran said due to the low levels of inflation risks to recovery, he reckons the central bank would have more room to keep the OPR at accommodative levels.
The OPR will likely to remain unchanged at 3% for this year, ensuring an accommodative monetary policy stance and price stability in the domestic economy, he added.
Hong Leong Investment Research said the OPR would ensure domestic demand to support the economic growth, despite “inflation outlook accords room for a rate cut”.
JF Apex research affirmed its stance that the OPR would be maintained at 3% until 1H13, with CPI below 2.5%.
It said the demand for food is likely to keep rising as emerging economies continue to consume more due to growing of population and affluence. However, uncertain weather conditions would threaten the supplies and hence drive food commodity prices up.
