KUALA LUMPUR (March 24): Economists expect Malaysia’s inflation to continue to trend upwards in the coming months, reflecting an uptrend in global oil prices which is pushing the Consumer Price Index (CPI) higher in key countries around the world.

Malaysia's CPI rose 0.1% to 122.5 in February from 122.4 in the same month last year, after almost a year of deflation induced by the Covid-19 pandemic and a plunge in crude oil prices.

On a month-to-month basis, the CPI was up 0.3% from January, according to the Department of Statistics Malaysia in a statement today.

The increase was supported by key groups such as food and non-alcoholic beverages, which rose 1.4% year-on-year, and miscellaneous goods and services, which rose 1.6% y-o-y.

In addition, prices of transport dropped at a softer pace of 2% y-o-y, in line with rising domestic retail fuel prices.

Year to date, however, the CPI is down 0.1% compared to the corresponding period last year.

RHB Investment Bank Bhd senior economist Ahmad Nazmi Idrus said he is keeping his CPI forecast at 2% for the year, as he anticipates the impact of cost-push pressures to be partly mitigated, following the government's decision to peg RON95 and diesel at RM2.05 and RM2.15 per litre respectively under PEMERKASA, he said.

PEMERKASA is Putrajaya's latest stimulus package worth RM20 billion, to jump-start the economy post-pandemic. It stands for Program Strategik Memperkasa Rakyat dan Ekonomi (Strategic Programme to Empower the People and Economy).

However, while cost-push pressures could be low, Ahmad Nazmi said the base effect will likely continue to be a major factor for upward CPI growth.

“We expect inflation to continue to trend upwards in y-o-y terms in the next few months as a correction from a significant drop in oil prices during the same time last year,” Ahmad Nazmi wrote in a note today.

He added that demand-pull pressures are expected to remain limited considering weak consumption.

While prices of non-fuel related items rose, deflation remains in fuel-related items, MIDF Research noted, but said it remains on improving trend — reflecting the movement in domestic retail fuel prices.

“The trend is anticipated to stay in March, with global oil prices as reflected by Brent continue to increase this month with prices for the first three weeks of March averaging higher at US$67.70 per barrel compared with US$62.70 per barrel in February,” it said in a note.

MIDF has revised its CPI inflation forecast upward to 2.3% in 2021 from 1.8% earlier, as it noted that inflationary pressure is expected to increase this year on the back of expansionary fiscal and monetary policies, higher commodity prices and returning demand as the economy recovers.

Its CPI forecast revision is in line with the upward revision of its in-house Brent crude oil target price to US$59 per barrel and crude palm oil (CPO) target to RM3,000 per tonne for 2021, it said.

“Successful vaccine rollout in the country will likely improve sentiments and encourage spending. Consumers may start to spend on discretionary items on better income prospects. Blanket withdrawal of i-Sinar could pave way for unaffected or less affected contributors to increase their discretionary spending,” it added.

UOB Malaysia economists Julia Goh and Loke Siew Ting are expecting the full-year reading of CPI to average at a higher rate of 3%.

“This comes as the economy is expected to recover further following the roll-out of vaccines and additional policy support, higher commodity prices, and year-ago low base effects. We project Brent oil prices to hover between US$60 to US$70 per barrel this year,” they wrote in a separate note.