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Nikkei Markets

Malaysia January inflation rate jumps to 20-month high, matches view

Print unlikely to sway monetary policy stance as risks to economic growth mount

KUALA LUMPUR (Nikkei Markets) -- Malaysia's retail inflation pace in January accelerated the most in 20 months on higher transport charges, and although comparison with the previous year's muted reading magnified last month's print, analysts said it isn't likely to influence the central bank's monetary policy stance.

The consumer price index - Malaysia's main gauge of inflation - rose 1.6% in January from a year earlier, according to a statement from the Department of Statistics. That matched the median prediction of 11 economists surveyed by Nikkei Markets and was faster than December's 1% year-on-year gain.

Economists said Bank Negara Malaysia will likely ignore the price gain as global crude prices have eased following expectation of weakening demand tracking coronavirus outbreak, and focus on supporting economic growth.

"BNM has already emphasised that the scope for policy rate adjustment remains," Australia and New Zealand Banking Group Economists Mustafa Arif and Sanjay Mathur wrote in a note to clients. "The higher annual inflation reading notwithstanding, supporting growth should be the main objective of monetary policy for now."

Last month, BNM cut the key policy interest rate by a quarter percentage point to 2.75% amid benign inflation in a "pre-emptive measure" to prop up an economy facing threats from lingering Sino-U.S. trade tension and other geopolitical risks.

After growing 3.6% in the final quarter of 2019, the slowest pace of expansion in more than a decade, Malaysia's economy faces mounting risks from the coronavirus outbreak that has claimed hundreds of lives and squeezed economic activities in China, its largest trading partner.

Malaysia's commodity exports and tourist arrivals are expected to be adversely affected following the virus outbreak, potentially shaking up business confidence, which could also weigh on private consumption, a key growth driver.

The overnight policy rate remained supportive of growth, BNM Governor Nor Shamsiah had said last month, noting that monetary policy consideration going forward would be data-dependent and guided by risks to outlook for domestic growth and inflation.

The January inflation print showed the index has gained 0.1% from the previous month.

The food and non-alcoholic beverages index, which carries the largest weighting at 29.5%, rose 0.9% from a year earlier in January, while the index for transport group, that includes gasoline and diesel, jumped 3.9 % year-on-year.

The index for housing, water, electricity, gas and other fuels gained 1.7% from a year earlier in January.

MIDF Research forecasts Malaysia's inflation rate to rise to 1.7% in 2020 from last year's 0.7% pace.

"Some upward pressure in prices could come from the food component through imported inflation as Malaysia is a net importer of food and weaker ringgit will result in the items to be more expensive," it said in a note to investors.

-- Jason Ng

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