The CMCO imposed in some parts of the country is a concern as that could escalate into a full lockdown if not handled well. — Bernama photo
KUCHING: Malaysia’s Consumer Price Index (CPI) declined for the seventh consecutive month in September, dropping by 1.4 per cent year on year (y-o-y), which was slightly below the consensus estimate of minus 1.3 per cent y-o-y.
On a monthly basis, the team at Hong Leong Investment Bank Bhd (HLIB Research) saw that CPI was unchanged from August 2020 due to flat growth in transport and housing, utilities and fuels.
Meanwhile, food and non-alcoholic beverages registered a decline. The decline in CPI was attributed to transport, housing, utilities and fuels, and clothing and footwear, which contributed 41.6 per cent to the overall index.
“Moderation was recorded in recreation services and culture, and education. Growth picked up for food and non-alcoholic beverages, alcoholic beverages and tobacco and furnishings, household equipment and maintenance,” it recapped in its notes yesterday.
“Against the backdrop of weak oil price pressure and extension of discounts on electricity bills until December 2020, we lower our average 2020 headline inflation forecast to minus one per cent y-o-y, from minus 0.5 per cent y-o-y previously.
“With sluggish prospects for economic growth and inflation, we expect Bank Negara Malaysia (BNM) to maintain OPR at the current low level until 2021.”
Public Investment Bank Bhd (PublicInvest Research) noted that the Conditional Movement Control Order (CMCO) imposed in some parts of the country is a concern as that could escalate into a full lockdown if not handled well.
“This could hurt economic recovery more so when it involves important states like Selangor and Wilayah Persekutuan Kuala Lumpur and Putrajaya which is home to large industrial and economic areas,” it forewarned in separate notes.
“The elevated number of new daily Covid-19 cases is also a bane as that may push consumers to remain cautious and continue preserving capital. This may also push businesses to delay capacity expansion and job creation by extension, with negative ramifications on macroeconomic conditions.
“This will be compounded by a longer-than-expected breakthrough in Covid-19 vaccine development amid the recent announcements in the halting of COVID-19 clinical trials by Johnson & Johnson and Eli Lilly and Co.”
PublicInvest Research said the yet-to-abate Covid-19 situation also means a longer recovery period for important sectors like aviation, travel and services which will hurt the supply side of the economy.
Meanwhile, the sticky unemployment level and weak job market also suggests that demand for goods and services may be soft in the near term.
“CPI may remain muted in the near term driven by the challenging Covid-19 situation which shows no sign of slowing down,” it reiterated. “Weak oil prices due to economic struggles in the AEs may also keep a lid on inflation. Economic uncertainties may also push consumers to be cautious in spending.
“Businesses, on the other hand, may resort to preserve capital – resulting in slow capital expenditures or worst, delays in expansion. This combination of factors is expected to take a toll on job creation and macroeconomic conditions which underpins our uninspiring inflation projection for the year.”