KUCHING: RHB Research Institute Sdn Bhd (RHB Research) has revised its inflation forecast of Malaysia lower to 2.3 per cent in 2015, as Malaysia has faced more subdued inflation pressure than expected.
In a report, it said, the subdued inflation pressure indicates businesses were exercising control to pass on rising cost to consumers in the initial month of implementing the goods and services
(GST).
As the price impact from GST implementation came in lower than expected, RHB Research revised its inflation forecast lower to 2.3 per cent in 2015, from 3.6 per cent previously and compared with 3.2 per cent in
2014.
As inflationary pressure is more subdued than expected despite the implementation of the GST, the research hosue believed the strength of economic growth will likely be a more important consideration relative to inflation for monetary policy decision in 2015 given the challenging global economic
environment.
”At the same time, there are also downside risks emanating from domestic demand factors, including falling oil and gas prices and its impact on oil and gas investment; slowing investment in the property sector; and risk of businesses and consumers over-reacting to the implementation of GST,” it said.
While there are expectations in the market for the Central Bank to cut interest rates to support economic growth, RHB Research was of the view that a cut in interest rates is unlikely unless the economy slows down significantly.
The research house believed the Central Bank would need to strike a balance between economic growth, inflation and the potential risk of further significant outflows of short-term capital.
Its assessment is that the Central Bank will likely keep the overnight policy rate (OPR) stable at 3.25 per cent in 2015.
Meanwhile, on the performance in April, RHB Research said, the headline inflation rate surged to 1.8 per cent year-on-year (y-o-y) in April, after rising by 0.9 per cent in March and compared with 0.1 per cent in February.
The research house noted that this was mainly attributed to the implementation of a six per cent GST beginning from April 1, 2015.
”As a result, April saw broad-based m-o-m price increases in most of the segments, led by the healthcare costs, restaurants and hotels and food and non-alcoholic beverages.
”The transportation segment was, however, relatively insulated from fuel prices that were kept unchanged during the month,” it said.
RHB Research noted that as it stands, the costs of healthcare accelerated to five per cent y-o-y in April, from 3.6 per cent in March, while the prices at restaurants and hotels jumped to 4.3 per cent y-o-y during the month, from 2.8 per cent in March.
It further noted that similarly, the prices of alcohol & tobacco gained pace to 13 per cent y-o-y during the month, from 10.6 per cent in March.
”In the same vein, clothing and footwear prices rebounded to register an increase of 0.7 per cent y-o-y in April, after dropping by 0.2 per cent in the previous month, while the costs of housing, water, electricity and gas also inched up slightly to 2.3 per cent y-o-y during the month, from 1.9 per cent in March,” it said.
The research house added that a pick-up in the prices of furnishings and household equipment, recreation services and culture and education services to 2.3, 1.5 and 2.6 per cent y-o-y respectively in April, compared with the corresponding rates of 0.2, 0.6 and 2.2 per cent in the previous month, made it worse.
Meanwhile, RHB Research noted that the costs of communications rose for the first time in four years by 2.3 per cent y-o-y in April, from minus 0.9 per cent in the previous month.
”In the same vein, the cost of miscellaneous goods and services also increased to 4.1 per cent y-o-y during the month, compared with 1.5 per cent in March.
”The costs of transport, however, continued to contract by 4.8 per cent y-o-y in April, albeit marginally smaller than 4.9 per cent in the previous month, as RON95 were kept stable at RM1.95 during this period,” it said.
RHB Research noted that as a whole, the core inflation rate bounced back to increase by 1.2 per cent y-o-y in April, from a modest +0.3 per cent in March and compared with a decline of 1.1 per cent in February.
Similarly, the research house said that prices of food and non-alcoholic beverages picked up to 3.1 per cent y-o-y in April, the first increase in three months, from 2.3 per cent in March.
Month-on-month (m-o-m), RHB Research noted that the rate of inflation rose by 0.9 per cent in April, the same pace as in the previous month.
”This was attributed to a rebound in food and non-alcoholic beverages but offset partially by a slower increase in the core inflation rate,” it said
It further noted that the more subdued increase in the core inflation rate was due to the slower increase in the transport cost of 0.3 per cent m-o-m in April, compared with +8 per cent in March, as the RON95 retail fuel petrol price was kept unchanged during the month, after being raised by 14.7 per cent in the previous month.
RHB Research said that this was offset partly by a faster increase in the costs of housing, water, electricity amd gas; and recreation services and culture.
”A surge in the costs of furnishings and household equipment; healthcare; clothing and footwear; education; communication; restaurants and hotels; alcohol and tobacco; and miscellaneous goods and services made it worse,” the research house added.
Going forward, the surge in Aprilfs inflation was more subdued than RHB Researchfs expectation, indicating businesses were exercising control to pass on rising cost to consumers in the initial month of implementing the GST.
The research house noted that this was aided by the Governmentfs move to keep RON95 retail fuel price unchanged during the month despite an uptick in crude oil prices, while the price controlled items in the basket of the consumer price index could also help to moderate the price increase.