The CPI’s food and non-alcoholic beverages component has been consistent at 1.2% for the third consecutive month (Photo by Suhaimi Yusuf/The Edge)
This article first appeared in The Edge Malaysia Weekly on June 29, 2020 - July 5, 2020
EVEN though inflation fell 2.9% year on year (y-o-y) in May to mark the third consecutive month of deflation, economists expect the trend to continue in the coming months, given lower crude oil prices and excess supply made worse by restrained domestic demand because of the Covid-19 pandemic.
On a monthly basis, however, the Consumer Price Index (CPI) rose 0.3% in May after declining 2.7% month on month (m-o-m) in April. According to economists, this shows that deflation could be bottoming.
“Firmer crude oil prices in May have resulted in the CPI rising marginally by 0.3% over the previous month after falling for two consecutive months. This turnaround in the m-o-m momentum indicates that the deflating CPI is bottoming out with the pickup in crude oil prices.
“Offsetting downward price pressures, however, will continue for the rest of the year arising from utility rebates, lower rentals and price reductions to stimulate consumer demand,” says Sunway University Business School economics professor Dr Yeah Kim Leng.
ACCIM’s Socio-economic Research Centre executive director Lee Heng Guie sees the deflation rate of the overall CPI narrowing in the months ahead, and says any price increases are likely to be at a moderate pace, capped by the presence of slack capacity.
He estimates the full-year CPI for 2020 to settle between -0.5% and -1%.
Unsurprisingly, the biggest drag on May CPI was the transport component, as it continued to register a double-digit decline of 20.8% y-o-y. According to Maybank Investment Bank Research, the drop follows the fall in retail fuel prices in line with lower global crude oil prices, the y-o-y effect of the 18% reduction in PLUS tolled highways since Feb 1 and electricity bill discounts from April for six months.