Malaysia: Consumer prices drop at significantly softer pace year-on-year in January
February 24, 2021
Consumer prices increased a seasonally-adjusted 1.24% from the previous month in January, accelerating from the 0.50% rise recorded in December. January's result was the sharpest increase in prices since February 2017. Looking at the details of the release, January’s upturn was largely attributed to a quicker growth in transportation prices and higher price pressures for housing and utilities.
Consumer prices declined 0.2% on an annual basis in January, a less pronounced drop compared to December’s 1.4% fall. Meanwhile, the trend pointed down mildly, with the annual average variation of consumer prices coming in at minus 1.3% in January (December: -1.1%).
Commenting on January’s reading, Kanika Bhatnagar and Sanjay Mathur, economists at ANZ stress the disconnect between inflation and monetary policy:
“This development is consistent with January’s monetary policy statement in which Bank Negara Malaysia (BNM) held the view that higher global commodity prices may push overall inflation into positive territory in 2021.Nonetheless, underlying inflation which is more representative of demand pressures will remain muted in view of economic slack and weak domestic demand. Thus, inflation continues to be a non-issue for monetary policy.”
However, Prakash Sakpal, senior economist at ING highlights:
“Malaysia's central bank has been defying the easing pressure even as tighter Covid-19 movement restrictions are poised to hit the economy hard in the current quarter. It should have more reasons to do so following the release of January CPI data showing a significant improvement in inflation, to -0.2% YoY from -1.4% in December. We have dropped our call of a 25bp rate cut in March and shifted to a stable policy view for the rest of the year.”