Malaysian Inflation Surges to Highest in More Than Eight Years

  • Prices have spiked in recent months on costlier fuel
  • Central bank sees inflation averaging 3%-4% this year

Consumer prices in Malaysia rose at the fastest pace in more than eight years in February, adding to the central bank’s policy dilemma as it tries to keep interest rates low to support the economy.

Key Points

  • CPI rose 4.5 percent in February from a year ago, exceeding the median estimate of 3.9 percent in a Bloomberg survey of 23 economists and the highest forecast of 4.3 percent
  • Prices rose 1.3 percent from the previous month

Big Picture

Inflation has spiked in recent months due to higher fuel prices, adding pressure on the central bank to raise interest rates. Bank Negara Malaysia said on Thursday inflation will probably average 3 percent to 4 percent this year, up from 2.1 percent in 2016, adding that 2017 will be another challenging one for monetary policy. The bank has left its benchmark rate unchanged at 3 percent since a surprise cut in July.

Economists’ Takeaways

  • The pass-through of higher global oil prices to domestic fuel costs will be the key driver of inflation in 2017, said Weiwen Ng, an economist at Australia & New Zealand Banking Group Ltd. in Singapore. Inflation may accelerate further to about 5 percent in March, he said.
    “However, growth dynamics do not point to the emergence of strong demand-pull inflationary pressures,” Ng said. “The central bank is likely to maintain its policy rate at 3 percent through 2017.” 
  • “They are watchful now but at the same time I think they are looking beyond this cost-push inflation,” said Edward Lee, regional head of research at Standard Chartered Plc in Singapore. Policy makers have already adjusted their inflation forecasts higher, so they have “already pre-empted this increase in the headline inflation,” he said.

Other Details

  • Transport costs surged 17.9 percent in February from a year ago, after increasing 8.3 percent in the previous month
  • Food prices, which makes up 30 percent of the CPI basket, rose 4.3 percent from a year ago
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