Analysts are expecting the CPI to range between -0.5% and -2% YoY, with the transport sector being the main driver of improvement
by ASILA JALIL/ pic by ARIF KARTONO
MALAYSIA is expected to remain in deflation territory in June, albeit at a slightly improved level from the two months prior as the economy slowly recovers from the impact of the Covid-19 pandemic.
Analysts are expecting the Consumer Price Index (CPI) — a measure of the inflationary level — to range between -0.5% and -2% year-on-year (YoY) for June, with the transport sector being the main driver of improvement.
Sunway University Business School economist Prof Dr Yeah Kim Leng said the CPI for June will improve, but remain negative at around -0.5% as fuel pump prices increased by about 18% during the month, despite being lower than the figure recorded in June last year.
Further, the easing of movement restrictions following the implementation of the Recovery Movement Control Order on June 9 also led to improvement in prices, which translates to improved consumer spending.
“The transport component, which is sensitive to fuel prices, will continue to be the main driver for the headline CPI recovery from negative territory.
“Meanwhile, core CPI, which excludes volatile food and energy items, is expected to inch up marginally from 1.1% in May to 1.3% in June on account of gradually firming prices,” Yeah told the The Malaysian Reserve (TMR).
The Department of Statistics Malaysia (DoSM) is expected to release inflation data for the month of June today.
Malaysia has been in deflation since March, when the CPI dropped 0.2% as fuel costs fell in line with the plunge in global oil prices. The index slipped 2.9% in April and May, the lowest rate of change since 2010.
According to former Malaysian Institute of Economic Research ED Prof Emeritus Datuk Dr Zakariah Abdul Rashid, the CPI is gradually adjusting to a “normal level” after experiencing a significant decline.
“The June index will perhaps be around -1.2% YoY, contributed by strong increases in the transport sector particularly, and others such as food and beverage, fuel and housing maintenance,” he said.
MIDF Amanah Investment Bank Bhd economist Mazlina Abdul Rahman expects a fall of -1.7% YoY in June 2020, due to an uptick in consumer spending as movement restrictions were eased, coupled with a low interest-rate environment.
The improvement in the CPI is associated with increasing oil prices as the price of RON95 averaged higher in June at RM1.58 compared to RM1.32 in May.
“Higher oil prices will reflect a lower fall of transportation costs which is the third-biggest component of the CPI basket,” Mazlina told TMR.
“In addition, prices of food, which is the largest component of the CPI basket, will continue to increase and contribute to the overall inflationary pressure.”
The housing and utilities sector will continue to record a deflation in prices buoyed by electricity rebates or discounts given by the government as part of stimulus measures, she added.
Bank Negara Malaysia has slashed the benchmark lending rate by 125 basis points since January this year, bringing the current rate to a record low of 1.75%. The move was made as concerns rose over the country’s economic state.
Meanwhile, RHB Investment Bank Bhd senior economic analyst Ahmad Nazmi Idrus expects the CPI to improve to -2% in June (from -2.9% in May) due to a smaller yearly contraction in commodity prices and slightly better aggregate demand following the reopening of the economy.
“The transport CPI should see the largest improvement. We also expect to see smaller broad-based improvement across all other CPI segments as well,” he said.
The decrease in the overall CPI in May was driven by the decline of transport (-20.8%); housing, water, electricity, gas and other fuels (-2.6%); clothing and footwear (-1.1%); and furnishings, household equipment and routine household maintenance (-0.2%) which contributed to 45.7% of overall weight.