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Nikkei Markets

Malaysian consumers turn upbeat in 2Q, first time in 4 years

Lower inflation expectation sparks optimism of higher consumption spending

Inflation expectation in Malaysia also fell in the second quarter with smaller proportion of respondents who think that prices will rise.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- Malaysian consumers turned optimistic in the second quarter for the first time in four years as inflation expectations fell sharply, suggesting robust spending in the months ahead, a survey by state-backed think tank showed Thursday.

The consumer sentiment index breached the 100-point optimism threshold to a 21-year high of 132.9, according to the Malaysian Institute of Economic Research that compiled the survey. The latest result shows that consumer spending plans in the months ahead will be strong, MIER said.

"Consumers are feeling better about their economic lot lately and they remain hopeful going forward," MIER said. "Consumers are also giving the inflation outlook the thumbs up."

The optimism follows the victory of Pakatan Harapan coalition in May 9 elections on the back of several populist pledges that included scrapping of the goods and services tax and re-introduction of fuel subsidy.

Economists however cautioned that the optimism may not translate into actual consumption if the improvement is not sustained and the result may be skewed by the euphoria surrounding the first change in political power in the Southeast Asian nation's more than six-decade of post-independence history.

"We have to consider that it was after the general election," said MIER Executive Director Zakariah Abdul Rashid. "Our respondents may be over-reacting."

Inflation expectation also fell in the second quarter with smaller proportion of respondents who think that prices will rise, MIER's survey showed.

The survey timed with the Asian Development Bank's cut in Malaysia's inflation rate outlook for 2018 as the multilateral agency expects fuel subsidies to help curb price gains. In an update published Thursday, the bank cut its forecast for Malaysia's inflation to 2.5% from 2.6%.

Inflation in Malaysia slowed to 1.7% in the first five months of 2018 from 4.1% a year earlier, largely thanks to lower transmission of global fuel price changes to domestic prices, ADB noted.

Prices for transportation, which comprises 13.7% of the consumer price index basket, rose at only a tenth of the pace last year and "fuel subsidies in effect since June 2018 are expected to further contain inflation," ADB said.

Malaysia's inflation rose in June at the slowest pace in more than three years as food prices increased at a much lower rate, while some non-food items turned cheaper after the goods and services tax was scrapped, official data yesterday showed.

The consumer price index, Malaysia's main gauge of inflation, rose 0.8% in June from a year earlier, according to a statement from the Department of Statistics. That compares with May's 1.8% year-on-year gain. On a seasonally-adjusted basis, the index declined 1.2% from the previous month.

The ADB maintained its Malaysia growth outlook at 5.3% for 2018 and 5.0% for 2019.

--Jason Ng

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