Alliance: Malaysia's inflation seen peaking at 3.8% in August

Alliance: Malaysia's inflation seen peaking at 3.8% in August
Business & Markets 2014
Written by Jonathan Gan of theedgemalaysia.com
Thursday, 20 February 2014 15:53

KUALA LUMPUR (Feb 20): Malaysia’s inflation, as measured by the consumer price index (CPI), is seen peaking at 3.8% this August before easing towards year end, according to Alliance Research Sdn Bhd.

In a note, Alliance said this had prompted the firm's expectation that full-year CPI may rise 3.2% in 2014. This compares to a 2.1% increase in 2013.

“Moving ahead, we expect inflation rate to increase further in the coming months, on the back of the rise in fuel prices and tariff adjustment, as well as the recent hike in assessment rates.

"CPI is forecasted to peak at 3.8% in August, before easing towards the year-end. Full-year, we forecast inflation at 3.2% in 2014,” Alliance said.

Alliance has issued its note following the announcement of the country's January 2014 CPI by the Statistics Department yesterday.

The department said January CPI rose 3.4% from a year earlier. Compared to the preceding month (December 2013), January CPI increased 0.6%.

Alliance said the CPI's 3.4% year-on-year rise was a 27-month high. The figure exceeded market expectation of a 3.3% increase based on a Bloomberg
survey.

"Despite the rising prices, we see minimal impact on the economic prospects due to the expected recovery in external demand, particularly from the advanced economies, as well as sustained domestic consumption growth.

"As such, we continue to believe the OPR (overnight policy rate) will remain steady in most part of 2014 – as inflationary pressures are caused by cost-push factors. However, the OPR has a 50-50% chance of being raised by 25bps in the latter part of 2014," Alliance said.

According to Bank Negara Malaysia, the OPR currently stands at 3%.