KUALA LUMPUR, Sept 23 — The 1.4 per cent year-on-year decline in Malaysia’s Consumer Price Index (CPI) in August 2020 — the sixth consecutive month of contraction since March this year — was within analyst’s expectation due to the lower retail fuel prices compared to a year ago.
According to the Department of Statistics Malaysia (DoSM), the RON95’s average price in August 2020 decreased to RM1.68 per litre versus RM2.08 per litre in August 2019, while RON97 dropped to RM1.98 per litre from RM2.51 per litre and diesel fell to RM1.81 per litre from RM2.18 previously.
Commenting on August 2020’s CPI, RHB Investment Bank Bhd’s Asean economics research head Peck Boon Soon said apart from lower retail fuel prices, soft demand due to the Covid-19 impact also kept prices at bay.
Despite the negative inflation rate, Peck believed Bank Negara Malaysia (BNM) will maintain the Overnight Policy Rate (OPR) at the current level of 1.75 per cent for the rest of the year.
“Excluding the fuel prices, inflation is still growing, rising 0.2 per cent in August 2020 compared to July 2020.
“Furthermore, with economic conditions gradually improving after the easing of lockdowns and subsequently likely to pick up pace in 2021, we think BNM is done with the OPR cut,” he told Bernama.
Elaborating on the OPR adjustment, Peck pointed out that there is a need for balance as interest rates which are too low will likely discourage savings and encourage people to take higher risk.
“This could result in more financial imbalances and people might get involved in money game type of investment,” he said.
Similarly, MIDF Amanah Investment Bank Bhd (MIDF Research) expects that BNM will pause from further easing for the rest of the year in view of the resumption of economic activities.
“The cumulative 125 basis points cut in OPR earlier this year is sufficient to provide accommodative monetary policy support for Malaysia’s economy,” it said in a note today.
BNM is scheduled to hold the last Monetary Policy Committee (MPC) meeting for the year on Nov 3.
On the CPI’s outlook, MIDF Research revised its CPI target downward to -1 per cent year-on-year (y-o-y) for 2020 from its previous estimation of -0.5 per cent y-o-y, as compared with 0.7 per cent y-o-y in 2019, as it expected inflationary pressures to remain muted moving forward.
“Improvement in crude oil prices are anticipated to remain sluggish on mounting demand concerns, particularly over surging Covid-19 cases.
“Additionally, the implementation of government electricity bill discounts until year-end will cushion some of the impact of utilities charges on the consumers, hence contributing to downward pressure to the CPI,” it said.
On consumer spending habits, MIDF Research opined that spending on non-essential items and overall domestic expenditures will take some time to recover.
“Consumers may hold back their spending plans on concerns over future personal finances and outlook for the job market,” it added.
Earlier today, the DoSM announced that Malaysia’s CPI, which measures the inflation rate in the country, fell 1.4 per cent y-o-y to 120.1 in August 2020 from 121.8 previously.
In a statement, chief statistician Datuk Seri Dr Mohd Uzir Mahidin attributed the decrease in the overall index to the decline in transport (-9.9 per cent), housing, water, electricity, gas and other fuels (-3.0 per cent), clothing and footwear (-0.6 per cent), furnishings, household equipment and routine household maintenance (-0.1 per cent) indices, which contributed 45.7 per cent to the overall weight.
However, on a monthly basis, the CPI increased 0.2 per cent compared to July 2020, due to the rise in miscellaneous goods and services (0.7 per cent), transport (0.4 per cent), housing, water, electricity, gas and other fuels (0.2 per cent), food and non-alcoholic beverages (0.1 per cent), alcoholic beverages and tobacco (0.1 per cent), health (0.1 per cent) and restaurants and hotels (0.1 per cent) indices. — Bernama
