KUALA LUMPUR, March 23 — The headline inflation is projected to increase to between 3 and 4 per cent in 2017, reflecting primarily the pass-through impact of the increase in global oil prices on domestic retail fuel prices.
Headline inflation remained low and unchanged at 2.1 per cent in 2016.
Bank Negara Malaysia (BNM) said the higher inflation would be mainly cost-driven and was not expected to significantly change the medium-term inflation outlook.
“This cost-driven inflation, however, is not expected to cause significant spillovers into the broader price trends, given the stable domestic demand conditions.
“Underlying inflation is, therefore, expected to only increase modestly,” it said in its Annual Report 2016 released here, today.
It said global oil prices were expected to be higher in 2017 following the decision by members of the Organisation of the Petroleum Exporting Countries and several other oil producing countries to reduce crude production to ease the glut in global oil supply.
“The higher global oil prices, along with the depreciated ringgit exchange rate, will translate into higher domestic retail fuel prices. Beyond oil, other global cost factors are also expected to put some upward pressure on domestic inflation,” said BNM.
Meanwhile, the central bank said global food prices were expected to remain low amid improved weather and supply conditions.
“The outlook is for overall commodity prices to register a modest rate of increase in 2017, underpinned by higher prices for agriculture and metal-based products.
“The inflation rates of Malaysia’s major trading partners are also projected to register small positive increases.
“However, the pass-through of these external price factors to domestic prices would be somewhat mitigated by the fact that domestic production and consumption contain relatively modest imported content,” said BNM. — Bernama
