News: Economists See No Deflation For Malaysia

May 27, 2020

Economists does not expect Malaysia to head into deflation even as the Consumer Price Index (CPI) deflated further by 2.9% to 117.6 points in April from 121.1 over the same period last year.

This comes as the core CPI, which removes volatile items like fresh food as well as administered prices, had been posting positive growth of 1.3% in the last three months, said Dr Mohd Afzanizam Abdul Rashid, Chief Economist at Bank Islam Malaysia Bhd.

“Therefore, it is not deflation since the primary driver for the decline in headline CPI was due to fuel prices and electricity charges whereby both sub-indices have declined by 38.2 per cent and 33.3 per cent respectively during April,” he told the New Straits Times.

“I do not think deflation is going to happen in a truer sense. We can see food prices are still at elevated levels. Some items have been reporting quite a substantial increment.”

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Besides, Malaysia had been witnessing trade deficits in food items, said Afzanizam, who expects food prices to remain high as the ringgit continue to be weak, reported the New Straits Times.

The country registered a RM17.4 billion in trade deficit in food items last year. The deficit continued since 1990.

In 2017, Malaysia’s Self Sufficiency Ratio (SSR) for rice, chilli and beef stood at 70%, 38.8% and 25.5% respectively.

“This would mean Malaysia has been relying from import source in order to satisfy its local demand,” he said.

Dr Ahmed Razman Abdul Latif, Associate Professor at Putra Business School, does not foresee Malaysia heading into deflation since the lower CPI was mainly due to the drop in global crude oil price in the past few months.

In effect, this caused a reduction in the cost of fuels and transportation, he said.

However, he expects the CPI movement to stabilise as the prices of global crude benchmarks like Brent had been on the uptrend in the last few weeks.

“In addition, the price of food and beverages has increased steadily and this will also ensure that the CPI will not go towards negative number,” he said.

RAM Ratings predicts a deflationary trend for Malaysia in the second and third quarters of 2020.

With this, the company revised its headline inflation forecast for this year to 0.0% from 0.7% previously, mainly due to subdued demand, weak global oil prices and generous discounts for household electricity bills.

“While inflation remained stable at 1.5% in January-February, it is expected to ease to -0.2% in March,” it added.

 

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