Thursday, September 20, 2012

August 2012 Consumer Prices: Bottoming Out

For the first time in over a year, consumer inflation in Malaysia has stopped decelerating (log annual and monthly changes):


The headline rate steadied at 1.3% in log terms in July and August 2012, about 60% slower than the rate this time last year. The core measure (ex-food; ex-transport) is still trending down, but food prices helped push the Pain index higher. We’re not talking about much here however (log annual and monthly changes):


On the whole, we’re likely to see a fairly benign inflation outlook for the rest of the year, more or less as projected.

Producer prices show an even sharper deceleration (log annual and monthly changes; data up to July 2012):


That more than allays my concerns over potential price pressures coming from all the private investment projects kicking off this year. Instead, what’s happened here is that excess demand has spilled over into higher imports rather than higher wholesale prices. In fact, the GDP growth contribution of higher investment in the first half of this year has been almost entirely offset by the shrinking trade balance.

While all this provides more room for BNM to loosen monetary policy if necessary, I rather don’t think they’ll be inclined to do so. It’s simply unnecessary.

Technical Notes:

August 2012 Consumer Price Index Report from the Department of Statistics

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