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Nikkei Markets

Malaysia's November inflation rate edges 0.2% higher

BNM expected to hold rate steady even if inflation gains pace in months ahead

Malaysia's core inflation, which excludes most volatile items such as fresh food and energy prices, increased 0.5% in November compared with the same month of the previous year.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- Malaysia's consumer prices rose at a slower-than-expected pace in November as fuel prices eased, cementing expectation that the central bank will hold policy interest rate steady in the months ahead despite a likely pick-up in inflation.

The consumer price index - Malaysia's main gauge of inflation - rose 0.2% in November from a year earlier, according to the Statistics Department. That compares with a median 0.4% rise predicted in a Nikkei Markets' poll and October's 0.6% on-year gain. The index gained 0.2% from a month earlier.

Economists said Malaysia's inflation will likely gather pace in the months ahead although the still-benign rate will allow Bank Negara Malaysia to focus on addressing mounting risk to economic growth next year.

"Inflation in Malaysia should have bottomed or somewhere around bottom," said Irvin Seah, Singapore-based economist at DBS Group. "Trajectory for prices should be upward going into 2019 but there could be some downside risk with oil prices and subsidies kicking in."

A decline in commodity prices, particularly that of crude oil, has taken some pressure off global food and energy costs. Brent, the global benchmark for crude oil, has dropped more than one-third from this year's peak in October.

Malaysia re-introduced a single-tier Sales and Services Tax from September after scrapping the highly-unpopular goods and services tax in June. The government has also re-introduced fuel subsidy and plans to roll out a more targeted version of the program next year.

In the immediate term, Malaysia has put more than dozen food items under the so-called Festive Season Price-Controlled Scheme between Dec. 23 and Dec. 27. The scheme imposes ceilings on prices of key essential items, helping to shield consumers from price shocks.

The food and non-alcoholic beverages index, which carries the largest weighting, climbed 1.1% from a year earlier in November. The index for transport group, that includes gasoline and diesel, slipped 2.3% year-on-year.

Core inflation, which excludes most volatile items such as fresh food and energy prices, increased 0.5% in November compared with the same month of the previous year.

"The rapid decline in oil prices of late could mean a slower rise in fuel prices next year," said RHB Research Institute's Economist Vincent Loo. "We expect the central bank to keep the overnight policy rate unchanged at 3.25% for the rest of the year and into 2019."

Bank Negara Malaysia kept the benchmark overnight policy rate unchanged at 3.25% at its most recent scheduled meeting on Nov. 8. The central bank's next monetary policy review is scheduled on Jan. 24 next year.

Malaysia's government projects the economy to expand 4.9% in 2019. Inflation meanwhile will likely come in between 2.5% and 3.5% next year compared to 1.5%-2.5% range estimated for this year.

--Jason Ng

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