The latest report on the CPI from DOS released last week shows the first uptick in the general price level since last year (log annual and monthly changes; 2000=100):
Monthly changes in log terms turned up for all indexes, with price increases pretty much across the board, but particularly in food (log annual and monthly changes; 2000=100):
Nevertheless, annual inflation is set to continue decreasing, as price level increases with respect to last year’s levels don’t amount to much (index numbers):
Apart from chicken and rice, the global prices of most major food commodities are at or below their 2011 average prices. Chicken prices though have barely stopped climbing in the last couple of years:
Global rice prices on the other hand are approximately back at 2009-2010 levels, although this is still something like 3x higher than it was ten years ago:
But on balance, these price increases will be offset or ameliorated by softer prices of other food commodities – beef prices have stagnated while wheat prices are 20% down.
On the whole, I don’t expect to see CPI inflation to revisit the 2.0% level unless something pretty dramatic happens to global commodity prices. There’s some incipient demand-led inflationary pressure on the services side (healthcare, restaurants and hotels, education), but core inflation will likely also continue to fall back, although still above 1%.
All this gives more space for interest rate cuts if BNM finds it necessary to loosen monetary policy. Another way of looking at it, is with the OPR kept at 3% BNM is engaged in passive tightening of monetary policy. That might worry some people, but beginning as we were with monetary policy on the loose side anyway, falling inflation is “normalising” monetary conditions without BNM having to do anything.
Technical Notes:
- May 2012 Consumer Price Index report from the Department of Statistics
- Global commodity price data from the International Monetary Fund
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Chicken at less than a usd per pound and 5% rice at less than RM2/kg?We sure a high cost economy.
ReplyDeleteThose are wholesale, ex-factory prices, not retail.
ReplyDeleteWats the norm for intermediary cost between factory and end user?Surely not more than 25%?
ReplyDeleteFood is perishable and subject to spoilage and wastage. Rice and grains are storable, but chicken and other meats deteriorates fast. I wouldn't be surprised if gross margins on meats and fruits are 100% or more.
ReplyDeleteThe graphs clearly show that goods consumer price increases. This is just one of the economic indicators that causing economic crisis.
ReplyDeleteMonetary policy has a bad impact in US Economy. According to Ed Butowsky, "this policy program that Obama chose hurts the middle class and single woman the most because they spend a higher percentage of their income on food and energy, which are rising the fastest due to his printing of money."