CPI may drop between 1.2% and 1.6% in June

Source: The Star Online (LAALITHA HUNT)


However, impending rise in power, transport costs can dampen recovery

PETALING JAYA: A spike in electricity as well as transportation costs is likely to put the brakes on Malaysia’s economic recovery.

According to RAM Holdings Bhd chief economist Dr Yeah Kim Leng, a rise in these costs ahead of an economic recovery, which is expected by year-end, could have a dampening effect on the already weak domestic demand.

“It also depends on the quantum of increase allowed by the Government. If it’s a small rise, it could be absorbed by consumers without derailing the recovery process.

“However, sharp price hikes are worrisome as they could exert undue upward pressure on prices of consumer goods as observed last year when fuel prices spiked,” he told StarBiz.

An electricity tariff review scheduled for July 1 was postponed in light of the current economic situation.

Meanwhile, a 30% hike in bus and taxi fares due in August will likely offset deflationary pressures on Malaysia’s consumer price index (CPI).

Economists polled by StarBiz forecast the country’s CPI for June, which is scheduled for release today, to contract 1.2% to 1.6% year-on-year.

According to the Statistics Department, the CPI was up 2.4% in May from the same month last year. It was 0.2% higher than April.

The index for food and non-alcoholic beverages in May showed a 5.2% increase, while that for non-food registered 1% rise compared with a year ago.

Yeah said the CPI was expected to contract as inflationary pressures had come off significantly in recent months.

“Besides the weakness in both global and domestic demand, prices have been on the downtrend due to the decline in commodity prices,” he added.

Meanwhile, TA Research economist Patricia Oh said the CPI contraction was expected as prices had been falling from January to May this year, albeit at a moderate pace.

“However, prices are seen to be stabilising, so there is no concern for deflation,” she said, adding that the CPI should turn positive by the fourth quarter.