September 2012 Consumer Prices

Consumer price inflation continued to slow marginally in September (log annual and monthly changes; 2000=100):

It’s now been just over a year since we last saw an increase in consumer inflation, and the current rate of increase is nearly two thirds less. What inflation there is, is being driven by the usual suspects – food and transport costs, although food prices have held steady between August and September (log annual and monthly changes; 2000=100):

Instead, September’s pain was delivered almost single-handedly through higher transport costs (log annual and monthly changes; 2000=100):

It’s not hard to figure out why: RON97 petrol was bumped up 10% to RM3.00 per litre on September 6. The other big mover was medical care and health, which rose 0.5% in log terms in September alone.

Just out of curiosity, I checked the elasticity of the transport cost index against global crude oil prices (in this case, West Texas Intermediate), and the relationship is statistically strong – a 1% increase in the WTI price results in a 0.048% increase in transport prices.

That may not sound like much, but a USD12 movement per barrel like we’ve seen over the past three months, should have caused a 0.6% increase in petrol prices, instead of the 0.36% that’s actually occurred. That’s evidence of the distortions in the domestic market caused by the fixed price of RON95 petrol.

Having looked at this, I’m wondering whether the government’s petrol subsidy estimate for this year might still be too conservative at RM25 billion.

Technical Notes:

September 2012 Consumer Price Index Report from the Department of Statistics