KUALA LUMPUR, June 24 — MIDF Amanah Investment Bank has forecast Malaysia’s consumer price index (CPI) to record a deflation of 0.5 per cent this year compared to an inflation of 0.7 per cent last year.
The investment bank said the forecast was based on the projection that prices of utilities, particularly electricity, would continue to decline following the rebates under the government stimulus package for six months effective April 2020.
In addition, high volatility in global crude oil prices, which skewed towards the low-side, would influence fuel-related components.
“As housing and utilities, and transport are the biggest components in overall CPI basket after food and beverages, we opine these to have a significant impact on overall inflation,” it said in a research note today.
On the other hand, it said consumers are trending away from discretionary to necessity, avoiding most purchases of non-food items such as clothing and furniture.
“This trend is likely to continue for a substantial period of time as concerns over future personal finances persist. Besides that, we do not foresee any major demand-pull inflation due to the Covid-19 pandemic,” it said.
The bank said some upward pressure could be expected in food component through imported inflation as Malaysia is a net importer of food and the weaker ringgit would make the items more expensive.
“As inflationary pressure remains low and there are more downside risks to the economy including Covid-19, global trade tensions, political instability, and the US presidential election, on top of the Federal Reserve’s policy rate at 0.25 per cent, Bank Negara Malaysia could undertake another 25 basis points cut in the Overnight Policy Rate for this year,” it said.
According to the Department of Statistics Malaysia (DOSM), Malaysia’s CPI declined 2.9 per cent in May to 117.9 versus 121.4 in the same month last year.
The year-on-year drop in the index in May was similar to that of April 2020 which was the lowest rate of change since 2010.
Chief statistician Datuk Seri Mohd Uzir Mahidin said the decrease in the overall index was driven by the decline of transport (-20.8 per cent), housing, water, electricity, gas and other fuels (-2.6 per cent), clothing and footwear (-1.1 per cent), and furnishings, household equipment, and routine household maintenance (-0.2 per cent), contributing 45.7 per cent of overall weight. — Bernama
