Malaysian inflation hits expected 2.9% in Nov
AmResearch sees inflation staying high in Dec 'due to higher transport cost and soaring food prices'
BY S JAYASANKARAN IN KUALA LUMPUR
PUBLISHED DECEMBER 20, 2013
ALL those price increases - in fuel and sugar - are beginning to bite.
Malaysia's inflation as measured by the consumer price index (CPI) increased 2.9 per cent in November from a year before just as the street predicted.
For the year-to-date, inflation grew 2 per cent.
In September, the government began to cut subsidies, and petrol prices rose 10 per cent.
That had an immediate impact. Transport costs, for example, increased 4.9 per cent in November year-on- year on the back of the higher fuel costs.
Fuel price hikes have a grievous impact on prices overall as the transport index accounts for 14.9 per cent of the overall CPI.
And the prognosis points the same way.
"Inflation will likely remain elevated in December due to higher transport cost and soaring food prices," AmResearch said in a report yesterday.
Indeed, the bank research unit estimates there will be a price increase of 3.1 per cent in December, which would bring the full- year inflation for 2013 to 2.1 per cent.
Things are expected to get worse in 2014 as electricity tariffs are slated to increase by 15 per cent effective Jan 1.
That would save national oil firm Petronas almost RM4 billion (S$1.54 billion) in gas subsidies.
And fuel prices could rise further.
"We foresee further price rationalisation amounting to RM3.5 billion next year," AmResearch noted.
"In part, RM1.7 billion in government savings could potentially come from another round of petrol pump price increases in the middle of 2014," it added.
Indeed, that is almost guaranteed to happen as Prime Minister Najib Razak's 2014 Budget is predicated on a 17 per cent cut in subsidies.
It's good from a fiscal consolidation point of view, which was noted approvingly by an International Monetary Fund (IMF) report released on Wednesday.
Indeed, the total savings from the petrol pump price hikes and the abolition of sugar subsidies were around RM3.8 billion.
"Inflation will escalate and could even surpass 3.2 per cent during some months in 2014 as the government reduces fuel subsidies in tandem with its fiscal consolidation efforts," the bank research house said.
Highway toll rates could also increase.
Works Minister Fadillah Yusof recently said that the toll concession agreements were up for review.
"If toll rates are reviewed, transport costs will increase and headline inflation will be even higher than our current projection," said AmResearch.
What would this mean for monetary policy? Most economists expect Bank Negara Malaysia to begin tightening monetary policy.
"Although we do not see a rate hike as imminent, we sense that BNM's waiting period before it normalises policy could be very short," Barclays Bank said in a report yesterday.
"We expect BNM to raise rates by 25 basis points in the second quarter of 2014 with another 25 basis point hike in the third quarter."
http://www.businesstimes.com.sg/premium/malaysia/malaysian-inflation-hits-expected-29-nov-20131220
AmResearch sees inflation staying high in Dec 'due to higher transport cost and soaring food prices'
BY S JAYASANKARAN IN KUALA LUMPUR
PUBLISHED DECEMBER 20, 2013
ALL those price increases - in fuel and sugar - are beginning to bite.
Malaysia's inflation as measured by the consumer price index (CPI) increased 2.9 per cent in November from a year before just as the street predicted.
For the year-to-date, inflation grew 2 per cent.
In September, the government began to cut subsidies, and petrol prices rose 10 per cent.
That had an immediate impact. Transport costs, for example, increased 4.9 per cent in November year-on- year on the back of the higher fuel costs.
Fuel price hikes have a grievous impact on prices overall as the transport index accounts for 14.9 per cent of the overall CPI.
And the prognosis points the same way.
"Inflation will likely remain elevated in December due to higher transport cost and soaring food prices," AmResearch said in a report yesterday.
Indeed, the bank research unit estimates there will be a price increase of 3.1 per cent in December, which would bring the full- year inflation for 2013 to 2.1 per cent.
Things are expected to get worse in 2014 as electricity tariffs are slated to increase by 15 per cent effective Jan 1.
That would save national oil firm Petronas almost RM4 billion (S$1.54 billion) in gas subsidies.
And fuel prices could rise further.
"We foresee further price rationalisation amounting to RM3.5 billion next year," AmResearch noted.
"In part, RM1.7 billion in government savings could potentially come from another round of petrol pump price increases in the middle of 2014," it added.
Indeed, that is almost guaranteed to happen as Prime Minister Najib Razak's 2014 Budget is predicated on a 17 per cent cut in subsidies.
It's good from a fiscal consolidation point of view, which was noted approvingly by an International Monetary Fund (IMF) report released on Wednesday.
Indeed, the total savings from the petrol pump price hikes and the abolition of sugar subsidies were around RM3.8 billion.
"Inflation will escalate and could even surpass 3.2 per cent during some months in 2014 as the government reduces fuel subsidies in tandem with its fiscal consolidation efforts," the bank research house said.
Highway toll rates could also increase.
Works Minister Fadillah Yusof recently said that the toll concession agreements were up for review.
"If toll rates are reviewed, transport costs will increase and headline inflation will be even higher than our current projection," said AmResearch.
What would this mean for monetary policy? Most economists expect Bank Negara Malaysia to begin tightening monetary policy.
"Although we do not see a rate hike as imminent, we sense that BNM's waiting period before it normalises policy could be very short," Barclays Bank said in a report yesterday.
"We expect BNM to raise rates by 25 basis points in the second quarter of 2014 with another 25 basis point hike in the third quarter."
http://www.businesstimes.com.sg/premium/malaysia/malaysian-inflation-hits-expected-29-nov-20131220
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