Inflationary pressures seen rising this year

Publication: NST

Date of publication: Feb 19, 2013

Section heading: Business Times

Page number: 003

Byline / Author: By Rupa Damodaran

KUALA LUMPUR: INFLATIONARY pressures in Malaysia, which remained benign last year, are expected to step up this year on stronger domestic demand in the second half of the year.

A Business Times poll expects the Consumer Price Index (CPI), the official barometer used to measure the inflation level, to grow by an average 2.4 per cent, from 1.6 per cent last year.

For January, they expect the CPI to record a 1.25 per cent growth from 1.2 per cent in December and the lowest since February 2010.

The Statistics Department will release the details tomorrow.

HSBC Bank expects another benign inflation reading, with the lowest print since December 2009.

Core inflation (minus food basket) will likely be stable, with a projected growth of 1.2 per cent this year.

Gundy Cahyadi of OCBC Bank said inflation is likely to tick higher in the second half of the year on the back of the strong domestic demand and partly due to the base effects.

"Price expectations could be on an upward trajectory amid anticipation that there may be some revision in administered prices and the GST this year."

Bank of America Merrill Lynch expects inflation to continue to remain benign in January. It said the Chinese New Year holidays, which fell in January last year and is in February this year, has led to a higher base in terms of comparison.

"Inflation may inch higher only in February on food and restaurant prices as a result."

CITI also said the CPI in January is likely stabilised at 1.2 per cent year-on-year due to the Chinese New Year base effects from last year.

"Going forward, we expect inflation to average 1.7 per cent this year, picking up to 1.5 per cent to 2.5 per cent in the second half of the year.

"Our inflation forecasts incorporate two RON95 fuel price cuts of 10 sen in June and December after elections and some spillovers from stronger domestic demand, a narrowing output gap, and possibly minimum wages."