Thursday, September 18, 2014

August 2014 Consumer Prices

Prices in August took another blip upwards (log annual and monthly changes; 2000=100):


Headline inflation hit 3.3% while core inflation also moved up to 3.1%. The Pain index, after a brief hiatus at 3.9%, is now back above 4.0%. For once, food wasn’t a key driver – this time, it’s housing and utilities (log annual and monthly changes; 2000=100):


So what’s up? Going by the breakdown, the biggest impact was from an increase in rental costs, which rose 0.6% between August and July, which is equivalent to an annualised increase of 8.0%! It doesn’t look so bad on an annual basis (3.2%), but it shows that housing shortage is beginning to be priced into rentals, and not just house prices.

One other item of real interest is the new inclusion of state-level CPIs. There’s not enough of a back series to make it worthwhile compiling a chart, but here’s the latest as of August 2014 (annual percentage change):

State Aug-14
Kedah & Perlis 2.9%
Pulau Pinang 3.5%
Perak 2.8%
Selangor 3.4%
KL & Putrajaya 3.8%
Melaka 3.5%
Negeri Sembilan 3.3%
Johor 3.9%
Pahang 3.3%
Kelantan 3.2%
Terengganu 2.9%
Sabah & Labuan 2.2%
Sarawak 2.7%

No big surprises here, except perhaps the slower pace of price appreciation in East Malaysia. Johor tops the list, with KL and Putrajaya not far behind. Selangor is a little slower than people might expect, but then Selangor is more than just the Klang Valley.

However, if you were to look at the price levels, there are some surprises. For instance, since 2010 when the CPI was rebased, Johor still tops the list in terms of the highest price level, but second is Kelantan followed by Selangor and Penang. KL drops to third last, just above Sabah and Sarawak. There’s no breakdowns available on which components are important for which state. Mind you, this says nothing about the relative of cost of living in each state, only the change in the cost of living relative to 2010. Still, the faster price appreciation outside of the core states is surprising.

How much will any of this figure into tomorrow’s Monetary Policy Committee Meeting? To be perfectly frank, not much at all. We’re still seeing the impact of the fuel price hike in September 2013, and will continue to deal with the base effect of excise duty hikes on alcohol/tobacco and the abolishment of the subsidy for sugar in October 2013. There’s too the electricity tariff hike in January 2014. So there’s a lot of push factors in the inflation number, which doesn’t signal any long term change in demand-side inflation or inflation expectations.

I’m expecting next month’s CPI report to show just 2.7% inflation for September, and down to just 2.1% by January 2015. That’s provided of course, that there’s no further subsidy rationalisation in the next few months.

Technical Notes:

August 2014 Consumer Price Index report from the Department of Statistics

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