KUALA LUMPUR: The headline inflation rate in Malaysia is expected to increase in the coming months with the after effects of the recent fuel price hikes, said economists.
The consumer price index (CPI) reading for September is expected to see some upside reading and a Business Times poll expects a 2.57 per cent annualised reading from the 1.9 per cent reading in August.
The Statistics Department will release the data today. (FRIDAY)
Imran Nurginias Ibrahim, economist with BIMB Securities expects inflationary pressure to rise in coming months as the cost pass-through effect of the fuel price hike is expected to take place across various sectors.
“Direct and spillover effects from the fuel-price hikes coupled with the rise in wages and resilient domestic demand could lift CPI growth higher.”
Price pressure, he said, will likely build up as well when the economic growth gains momentum in the second half of 2013 and this would translate into higher headline CPI.
DBS Bank economist Irvin Seah said although this latest move is expected to save about RM3.3 billion per year as part of the crucial budget reforms, the inflationary effect will surely be manifested in the headline inflation number.
The government cut both RON95 petrol and diesel subsidies by 20 sen per litre, which led pump prices for RON95 petrol to rise to RM2.10 per litre and diesel to RM2 per litre after the hike, up from RM1.90 and RM1.80, respectively.
“In fact, there is upside risk to September inflation. Opportunistic pricing behaviour by retailers to capitalise on the hikes in fuel prices as well as a weaker currency, which could stoke higher imported inflation will likely put further upward pressure on domestic prices.”
The ringgit has depreciated about 5.6 per cent compared to the same period last year.
“The days of strong growth, low inflation is coming to an end. This is the price to pay in reining in the fiscal deficit. A process that is necessary to bring about longer term fiscal sustainability and economic stability.”
Dr Chua Hak Bin of Bank of America Merrill Lynch said following the raise in fuel prices, which accounts for 8.5 per cent of Malaysia’s CPI basket, inflation in services (restaurant and hotels, education) components are likely to remain sticky.