Malaysia records CPI-registered deflation after decades -- MIDF Research

KUALA LUMPUR (Jan 22): The Covid-19 pandemic pushed Malaysia’s Consumer Price Index (CPI) to drop 1.2 per cent in 2020, a fall that was never observed for decades, said MIDF Research.

The research house said the last time Malaysia had a deflation in CPI was in 1965 with a tepid fall of -0.1 per cent year-on-year.

“The 2020’s deflation was a result of COVID-19, which suppressed demand combined with sluggish global oil prices.

“Food and non-alcoholic beverages managed to grow by 1.3 per cent year-on-year (2019: 1.7 per cent) while non-food prices decreased by 2.3 per cent year-on-year (2019: 0.2 per cent),” it said in a note Friday.

MIDF Research said the continued declined in the Producer Price Index (PPI), a leading indicator for CPI inflation, is suggesting that inflationary pressure from producer’s cost on consumer prices will remain subdued at least until the early part of 2021.

The PPI decreased 3.0 per cent year-o-year in November 2020, marking the ninth straight month of deflation.

“We revised CPI inflation forecast downward to 1.8 per cent in 2021. 

“With the latest announcement on electricity rebates and new vehicle sales tax exemption that will be continued for the first half of 2021, the increase in CPI could be moderated than our initial estimate of 2.2 per cent year-on-year,” it said.

Meanwhile, with almost the entire country being placed under the movement Control Order (MCO) due to a spike in COVID-19 cases, it reduced people’s outdoor activities and eventually affect consumption.

“Nevertheless, in general, prices for most of the goods will improve compared to last year’s fall of 1.2 per cent on the back of returning demand as the economy recovers, facilitated by low interest rate environment and vaccine distribution.

“Global crude oil prices are also expected to inch higher this year at an average of US$51 per barrel for Brent,” it noted.

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