It could moderate should crude oil prices continue to fall

PETALING JAYA: Malaysians should brace for higher prices this year on rising public transportation charges, toll rates and the abolishment of electricity rebates.

Nomura Holdings Inc senior economist for South-East Asia, Euben Paracuelles, said in a note that prices would increase by 2.8% year-on-year for 2016 compared with a 2.1% rise in prices last year.

However, he said inflation could moderate should crude oil prices continue to fall.

Meanwhile, local brokerage JF Apex anticipates inflation to rise by 2.9% this year.

Both research houses expect Bank Negara to maintain the overnight policy rate (OPR) at 3.25% this year as inflation remains manageable.

“At the current level of the OPR, the stance of monetary policy remains accommodative and supportive of economic activity,” said JF Apex.

Economists expect core inflation to remain at 3.7% in December 2015. Paracuelles sees inflation to continue rising this month and projects an average 4% rise in inflation for the first quarter before moderating to 2.4% for the remainder of the year.

He said the higher projection for the first quarter was due to substantial base effects from the fuel price cuts in the first quarter of last year.

“These base effects should reverse quickly, given the implementation of the goods and services tax in April 2015. Fuel prices were also cut again in January, by another 10 sen for RON 95 and by 20 sen for RON 97 petrol prices, and there could be more to come.

“We estimate average ringgit-denominated Tapis crude oil prices month-to-date are already about 11.4% lower than the December monthly average, suggesting a likely fuel price cut next month,” Paracuelles said.

Malaysia’s consumer price index (CPI) rose 2.7% to 114.8 year-on-year last December compared with 111.8 in the same month of the previous year, bringing the full-year average to 2.1%.

The increase in December was due to a 22.8% increase in alcoholic beverages and tobacco prices, and also higher contribution from restaurants and hotels; food and non-alcoholic beverages; health; as well as furnishing, household equipment and routine household maintenance.

According to a statement by the Statistics Department, these five groups of goods and services weighed 41.1 and contributed 90.2% to the increase in the CPI for the month of December.

While it was within consensus’ expectations, the December CPI was higher than Nomura’s forecast of 2.4% but lower than JF Apex’s forecast of 2.9%.

However, the transport category fell for the fifth consecutive month, contracting 6.2% from a contraction of 5.2% in November, reflecting the 10 sen cut in RON 95 petrol prices.

JF Apex expects the CPI will continue to grow by 3% year-on-year in January 2016, supported by its main components including food and non-alcoholic beverages, alcoholic and tobacco indexes and housing, water, electricity, gas and other fuels.

This is mainly due to higher price in cigarettes, electricity tariff and toll rate hikes together with natural gas tariff increase for the non-power sector in Peninsular Malaysia.