Malaysia Inflation up 3.4% in October

The country's inflation rate as measured by the consumer price index (CPI) remained unchanged at 3.4% in October on a year-on-year basis, with prices mainly driven by growth in the food component.


This was in line with market expectations and was just slightly above the median of 3.3% in a Bloomberg survey of economists.

The Statistics Department said month-on-month, prices were up 0.2% with food and non-alcoholic beverages as well as non-food items for October 2011 showing increases of 5.7% and 2.4% respectively when compared with the corresponding month.

Goldman Sachs Group Inc's Singapore-based economist Mark Tan said in a report that headline inflation would remain near current levels over the next few months before moderating in 2012.

“Food prices (partly driven by floods in the region) should continue to add to upward pressure in the coming months, though this will likely be balanced out by the lower commodity prices in recent months and increasingly, lower core inflation next year, as demand slows,” he said.

Tan said the house's 2012 inflation forecast was for prices to average 2.6% from the average 3.2% expected this year.

Citigroup Inc's Singapore-based economist Kit Wei Zheng said although inflation pressures have not completely dissipated due to economic outperformance in the third quarter, a more forward-looking perspective suggested inflation would likely moderate below Bank Negara's implicit inflation tolerance threshold of 3% by next year and perhaps as early as this December.

“The marginally higher petroleum subsidy allocation in 2012 should cap supply-side inflation pressures and the government could cut fuel prices if crude oil prices decline,” he said.

Kit said the central bank would not have to worry about inflation if it needed to cut rates if domestic demand showed signs of softening amid receding inflation risks.

Meanwhile, Hong Kong-based Societe Generale senior Asia economist Joseph Lau said in a report dated Nov 17 that base effects (calculating from a year-on-year basis) would mean that inflation would be lower across Asia in the first quarter of 2012, assuming prices remained stable month-on-month.

He said this was on the assumption that all other drivers of inflation were stable through this period, which would be unlikely.

Lau said “as long as month-on-month momentum is stable or close to, Asian inflation will be coming off naturally and markedly over the next few quarters, most notably from the second quarter of 2012.”

He added that these assumptions were not unreasonable given the weak global economic growth next year and slower activity emerging in Asia although there was still cost-push price pressure remaining in the region.
“Producer price index inflation was still rising faster than CPI across the region through the third quarter, suggesting that latent price pressures may still be feeding through into CPI later,” Lau noted. (The Star Online)