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

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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.

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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.

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