Thursday, April 18, 2013

March 2013 Consumer Prices

Inflation in Malaysia remains well below the norm as consumer prices in March edged up a bit by 1.6% (log annual and monthly changes):


Much of it was driven – at least on an annual basis – from higher transportation costs, as non-food and transport prices edged downwards.

On a month-to-month basis however, overall food prices did not budge from January while transport prices only moved up about 0.6%. The other price movers were funnily enough, furniture and fittings (0.4%) and restaurants (0.4%). That explains the steeper m-o-m increase in core prices over increase in the pain index. Nevertheless, it looks like the expected increase in inflation is beginning to take off.

We’re still some ways off from the 2%-3% average inflation that BNM has forecasted – it looks increasingly likely that at best, we’ll see the lower end of that range, and at worst we’re likely to see the forecast overshoot actual inflation.

If you’re wondering why I’m calling low inflation bad, it goes back to one fundamental economic truism and one market observation – higher inflation is a sign of an economy close to its potential output and/or higher commodity  prices. Either or both would be positives for the Malaysian economy. The latter especially boosts rural incomes (and exports) and helps reduce inequality. Malaysia’s long term average rate of inflation is just under 3% (the exact figure depends on the sample period you use).

Technical Notes:

March 2013 Consumer Price Index report from the Department of Statistics


  1. Higher inflation is not a good sign of economy close to its potential, it is only a signal. In fact, Malaysia is growing slightly above potential now despite the low inflation. why? Because we impose price controls and subsidies on most items and wage increase is supressed particularly in the low skilled (foregin workers). I wont worry much with low inflation

    1. @N

      Price controls are concentrated on food items and in oil & gas. But my core inflation measure - which excludes both - is low and dropping.

      On the other hand, per worker manufacturing wages for 2012 outpaced both per capita nominal GDP growth and per worker manufacturing sales growth.

      So yes, I think the economy is close to potential. But it's not translating into demand led consumer price pressures, or even in imports of consumption goods. Put another way, we're experiencing unbalanced growth, which might not be sustainable.