Economists see stable inflation level in MALAYSIA

By Rupa Damodaran

KUALA LUMPUR: Inflation level in Malaysia has probably remained stable in October, although it could be a turning point for it to pick up in coming months, economists said.

A Business Times poll expects the Consumer Price Index to register a 1.33 per cent growth in October.

The Statistics Department will release the data today.

Citi said headline inflation is likely to remain stable in October, but inflation is likely to trough as base effects begin to turn unfavourable in coming months.

“The softening external outlook has likely reduced demand pull inflation pressures though not eliminated them completely as domestic demand remains relatively resilient.”

Dr Chua Hak Bin of Bank of America Merrill Lynch expects inflation to tick up slightly on higher food prices.

Droughts in the US have raised prices of corn and soya bean, which account for about 80 per cent of the feed used by Malaysian chicken farmers.

Robust domestic demand may have also lifted prices slightly, he added.

Singapore will also release its October CPI data today.

Irvin Seah of DBS Bank compared both countries saying the average inflation rates for both countries were on the opposite side of the spectrum.

Overall, inflation in Singapore will likely come in higher than 4.5 per cent this year, while Malaysia will probably register 1.7 per cent this year.

Historically, Singapore used to perform better when it comes to controlling inflation with average inflation for the last 20 years for Singapore at 1.9 per cent versus 2.8 per cent for Malaysia.

In contrast, Malaysia is comfortably enjoying one of the lowest inflation rates in the region.

“Although most will point to the government’s subsidy programme as the linchpin for the domestic price stability, one should not forget the decisive interest rate normalisation by Bank Negara in 2010 amid the risks of the European debt crisis.

“In our opinion, that has also contributed to the current low inflation scenario,” he remarked.

He expects the central bank to keep a tight vigilance on price pressures by keeping the Overnight Policy Rate at its current level of 3.00 per cent.

“Such steady handle on monetary policy stance and price pressure should continue to deliver a fairly low inflation rate going forward.”

But the current subsidy programme may not be sustainable in the longer term, he warned.

The government has indicated the need to restructure its tax regime in order to ensure longer term fiscal sustainability.

“The risk is that it could bring about the introduction of some forms of sales tax, which will most definitely drive inflation higher.”

Source: Business times

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