KUCHING: The Consumer Pricing Index (CPI) in September increased 2.6 per cent year-on-year and 0.2 per cent month-on-month, indicating flattish growth in varied components.
Economist Manokaran Mottain from AllianceDBS Research believes the implementation of Goods and Services Tax (GST) in April 2015 could contribute to an even higher inflation rate as early as the first quarter of 2015, largely due to anticipated front loading purchases by consumers.
However, he believed GST-induced inflation is expected to normalise by 2015 year-end.
“In this regard, our inflation target remains unchanged at 3.5 per cent in 2014, a level that remains fairly manageable in the current economic climate,” he said in his note to investors yesterday.
“Moving forward into 2015, we expect inflation to hit four per cent, while the government’s guidance is between four and five per cent. Inflation is expected to normalise by 2016 to around three per cent.”
In this regard, Manokaran also opined that the Overnight Policy Rate at 3.25 per cent will be maintained for the next six months before a potential hike either in May or in July 2015. He added his Gross Domestic Growth (GDP) growth forecasts remain at 5.8 per cent for 2014 and 5.2 per cent for 2015.
meanwhile, the team of economists at Maybank Investment Bank Bhd (Maybank IB Research) also expect CPI inflation to be elevated above long-term average from Apr 2015 onwards with the introduction of GST but starts to taper towards the final quarter of 2015 to average the year between 4.5 to five per cent.
“Headline CPI inflation could remain above six per cent year on year during May to September 2015 to end the year at about five per cent year on year.
According to the Budget 2015 speech, of the 944 goods and services in the basket of goods in the CPI, the prices of 532 items (56.4 per cent of total CPI items) are expected to fall by as much as 4.1 per cent in 2015.
These include medicines, electrical appliances such as refrigerators and washing machines, textile products, plastic products such as pails and plates, shoes and slippers, household furniture, baby diapers, soap, meat, chicken eggs, cooking oil, seafood, rice and vegetables.
About 354 goods and services (37.5 per cent of total CPI items) will experience price increases of no more than 5.8 per cent. The price of the remaining 58 goods and services are expected to remain stable.
“This implies a maximum net price increases of 1.7 per cent in 2015 attributed to the GST implementation,” the Maybank IB Research economists said.
“However, it is reported (yesterday) quoting the Royal Malaysian Custom’s GST Department director that the net inflation impact of GST could be lower at one per cent due to the above-mentioned revision and addition of non-GST items during the tabling of Budget 2015.”