The CPI numbers for April were released late on Wednesday, and they point to benign inflationary pressure (log annual and monthly changes; 2000=100):
The annual change is still high, but the monthly growth numbers show the impact of price hikes of subsidised goods has dissipated away, showing little in the way of any pass-through into other prices.
This is more clearly seen in the movement of the underlying indexes (index numbers; 2000=100):
All three of the indexes I monitor – headline CPI, Core inflation, and the Pain index – have flattened out over the past two months. In fact, the Pain index (food + transport) has been effectively flat since the turn of the year.
Looking at the detailed breakdown, there have been price increases in health and to a lesser extent in education and transport, while prices of communications, food and clothing have dropped. These price movements more or less cancel out.
Price increases (with the exception of communication) is largely being driven by services based price increases, which is as it should be – that’s symptomatic of higher wages (aka labour costs), which is something I think is a necessary concomitant of becoming a high income economy.
More to the point, this underlines the point that if BNM were to raise the OPR at the next MPC meeting due in July (word on the street is that they will), it’s not going to be because of inflation or a negative real interest rate. The real interest rate is about as positive as you’d want it to be:
The key words used in the last MPC statement was about financial imbalances. While I don’t necessarily agree that this is likely to arise – all the signs point to a declining momentum of growth, 6.2% 1Q2014 GDP growth notwithstanding – I can’t discount the possibility. Let’s just not pretend an interest rate hike has anything to do with inflation.
April 2014 Consumer Price Index report from the Department of Statistics