By Sherilyn Goh
Headline inflation is expected to peak in the first quarter of 2016 (1Q16) due to Goods and Services Tax (GST) cost pass-through and a low base effect from unusually low inflation in the corresponding quarter in 2015 (1Q15), according to Kenanga Research.
“For 2016, we expect inflation to pick up to average 3.5% driven mainly by series of administrative adjustments, lagged effect of GST and imported inflation as well as low base effect in 1Q15,” said HLIB Research.
Similarly, AmResearch is expecting headline inflation to escalate to an average of 3.1% in 2016, compared to its full-year expectation of 2.1% for 2015. Upside pressure to prices, it added, could arise on the back of reduction in subsidies.
This comes after the Consumer Price Index (CPI) used to gauge inflation for November 2015 rose 2.6% year-on-year (y-o-y) to 114.8 from 111.9 previously, according to data released by the Department of Statistics. On a month-to-month (m-o-m) basis, the CPI for November 2015 increased by 0.6%.
Higher headline inflation in November is said to be driven by higher tobacco prices from an excise duty increase. The alcoholic beverages and tobacco category – comprising 2.2% of the CPI basket – experienced a 20.7% y-o-y and and 17.5% m-o-m respectively, albeit coming at the lower end of Kenanga’s expectations.
The research house added that lower transport costs on a y-o-y basis have staved off inflationary pressures in November. The transport category registered a decrease of 5.2% y-o-y but was up 0.4% m-o-m. This is despite government-regulated prices for petrol and diesel have remained unchanged from October.
MIDF Research is attributing the increase in the transport category as a reflection of the toll hikes. It said: “The effect of the toll hike was apparent with the transport sub-index, ‘other service in respect of personal transport equipment’ saw its largest y-o-y and m-o-m increase by 8.78% and 7.67% respectively.”
Meanwhile, the food and non-alcoholic beverages category – whose lion share of the CPI basket comes in at 30.3% – increased by 4.1% y-o-y, down from 4.7% y-o-y in October, breaking a four-month trend of accelerating food price inflation trend.
Public transport fare hike minimal impact on CPI
Elaborating further, Kenanga Research said the increase in various public transportation fares in December is not expected to have a significant impact on December CPI, as it carries a miniscule weight in the basket of goods and services that make up the CPI.
Kenanga Research is maintaining its 4Q15 inflation forecast at 2.6% y-o-y and the full-year change in the CPI basket at 2.1%. This is while other major developed economies continue to face difficulty in shaking off low inflation, with deflation remaining entrenched in neighbouring Singapore and Thailand.
Citing stable prices and economic growth, AmResearch is expecting Bank Negara Malaysia to maintain its accommodative monetary policy, with the key rate maintained at 3.25% during the next policy meeting scheduled for Jan 21, 2016.
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