Elevated consumer price inflation in Malaysia
We forecast Bank Negara Malaysia (BNM), the central bank, to raise the policy rate by 25bp tomorrow
Near-doubling of inflation in 2017
Malaysia reports consumer price inflation data for December today. The Bloomberg consensus, of which we are a part, is centred on a 3.5% year-on-year CPI inflation, an uptick from 3.4% in November. If materialized, this will put the full-year 2017 average inflation at 3.9%, almost double than 2.1% in 2016 and close to the top end of the central bank’s 3-4% forecast.
Food and transport prices have been the main inflation drivers. While we expect these factors to remain in play this year, the normalization of base effects from administered fuel price hikes in early 2017 will likely depress the year-on-year inflation rate. Moreover, expectations of continued appreciation of the Malaysian ringgit, thanks to country’s strong economic fundamentals, dampens imported inflation, especially the transmission of rising global oil price to domestic fuel prices. We forecast 3% average CPI inflation in 2018, in the middle of the 2.5-3.5% official forecast for the year.
| 3% |
ING inflation forecast for 2018 |
Policy implications
This is a key data before Bank Negara Malaysia (BNM) monetary policy meeting tomorrow when we expect a 25bp policy rate hike. Strong growth, negative real interest rates, and an undervalued currency are the arguments for BNM tightening this year, even as inflation slows (click here for more on BNM policy).
Download
Download article
24 January 2018
Good MornING Asia - 24 January 2018 This bundle contains 5 articles"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.
This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.
The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.
ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).