CPI contracts for 6th consecutive month led by poor fuel price

by SHAHEERA AZNAM SHAH / pic by BLOOMBERG

MIDF Amanah Investment Bank Bhd (MIDF Research) expects deflationary pressure to inflation to persist as oil prices are anticipated to remain sluggish on mounting demand concerns particularly over surging Covid-19 cases.

Inflation as measured by Malaysia’s Consumer Price Index (CPI) declined further by 1.4% year-on-year (YoY) to 120.1 in September, the sixth consecutive month of contraction led by the decrease in the CPI’s transport component, according to a statement by the Department of Statistics Malaysia.

The transport group prices declined 9.9%, housing, water, electricity, gas and other fuels group fell 3%, while clothing and footwear dropped 0.6%, contributing 41.6% to the overall weight.

“The CPI without fuel showed a positive rate of 0.1% in September 2020 compared to September 2019. CPI without fuel covers all goods and services except RON95, RON97 and diesel,” said chief statistician Datuk Seri Dr Mohd Uzir Mahidin in a statement yesterday.

The average price of RON95 in September 2020 dropped to RM1.68 per litre compared to RM2.08 in September 2019, while the average price of RON97 decreased to RM1.98 per litre against RM2.58.

Diesel price dropped to RM1.73 per litre from RM2.18.

MIDF Research noted that the implementation of government electricity bill discounts until the end of the year will cushion some impact of utilities charges on consumers, thus contributing to downward pressure to the CPI.

“Despite Malaysian consumers resuming their spending activities, we opine that the recovery for spending on non-essential items and overall domestic expenditures will take time to fully recover.

“Consumers may hold back their spending plans on concerns over future personal finances and outlook for the job market,” noted MIDF Research in a research report.

In view of recovering economic activities, MIDF Research foresees Bank Negara Malaysia to pause from further easing for the rest of the year.

The cumulative cuts of 125 basis points in Overnight Policy Rate earlier this year by the central bank is sufficient to provide accommodative monetary policy support to Malaysia’s economy.

Among the groups that showed improvement in the annual comparison are the food and non-alcoholic beverage group with an increase of 1.4% to 135.1 from 133.2 last year which contributed 29.5% to the CPI weight.

Among others are the miscellaneous goods and services group, which rose 2.7%, followed by communication with 1.6% increase and health with 1.1%.

The core index for the month rose 1% compared to last year, contributed by the miscellaneous goods and services, communication, food and non-alcoholic beverage and health groups.

For the monthly comparison, the CPI remained unchanged compared to August 2020 with restaurants and hotels (0.2%), alcoholic beverages and tobacco (0.1%), furnishings, household equipment and routine household maintenance (0.1%), recreation services and culture (0.1%) and education (0.1%) showing improvements.

The index in the third quarter of 2020 declined 1.4% to 120.2 compared to 121.7 last year.

The index for all states decreased between 0.8% and 2.2% during the month compared to September last year.

The highest decrease was recorded by Melaka, Sabah, Labuan, Kedah and Perlis with -2.2%. It was followed by Sarawak (-2.1%), Negri Sembilan (-1.9%) and Johor (-1.9%).