Consumer prices on the rise

Retail inflation in Malaysia, as measured by the CPI (consumer price index), surprised in November by rising at a quicker-than-expected pace. The CPI inflation rose at a 1.8% year-on-year in November compared to a 1.4% pace in October. Core inflation, which strips off volatile items like fresh food, and price-controlled goods and services from calculations, was up 2.2% in November compared to a year ago.

The rise was driven by a sharp uptick in the food and non-alcoholic beverages main group, which saw prices surging by 3.8% year-on-year in November as compared to 2.5% in the previous month. The food and non-alcoholic beverages main group has the highest weight in the overall CPI, forming 30.2% of the index.

The housing, water, electricity, gas, and other fuels main group, which forms 23.8% of the CPI, saw a rise of 2.1% in November, the same as last month.

On the other hand, sub-indices for communication, transport, and clothing & footwear offset the rise by other main groups. These indices saw a contraction of 2.7%, 1.5%, and 0.5%, respectively, in November. While communication and clothing & footwear had seen a decline by a similar pace in the previous month as well, the pace of decline in the transport category fell as it had seen prices fall by 5.5% year-on-year in October.

Subgroup details

- Advertisement -

The rise in food and non-alcoholic beverages was led by a surge in prices of the oils & fats category; the subgroup saw a 36.6% surge in prices in November, compared to 0.3% in the previous month. Cooking oil led the surge among oils & fats, rising by 45.6%. Prices of meat rose by 6%, after having risen by 2.4% in October. The category was led by prices of chicken, which rose 10%. Vegetable prices surged as well, rising by 3.6% in the month; prices had actually contracted by 1.1% in October.

Related Article  Malaysia's Outlook Turns Brighter, But Concerns That Linger Are Beyond The Market's Control

At present, Malaysia’s central bank, the Bank Negara Malaysia, has kept its overnight policy rate at 3.00%; the rate had last seen a cut by 25 basis points in July to stimulate the economy. A rate cut also stokes inflationary pressures. The Malaysian government expects the economy to grow in the 4.0% to 4.5% range in 2016, while inflation is expected to be in the 2.0% to 3.0% range in 2016.

The iShares MSCI Malaysia ETF (EWM) provides direct access to Malaysian stocks. Meanwhile, the Global X Southeast Asia ETF (ASEA) has over a fifth of its portfolio invested in stocks from the country.

- Advertisement -