Malaysia: Inflation Down in May but Impact of Power Tariff Hike Awaited; Zeti Acknowledges Use of Myr to Counter Inflation; Weaker April Output and Sales No Worry Yet

Summary

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Consumer price inflation fell back sharply to a lower than expected 3.9% in May from 4.6% in April and a seven-year high of 4.8% in March when a fuel price rise hit hard. As in April, falling food price inflation offset the impact of high transport costs. The result was welcome news for the authorities but all eyes are now on June when an average increase of 12% in power tariffs will show through. Mainly because of this hike, independent forecasts for 2006 inflation have been nudged up towards 4.1%, against a 3.9% rise over the first five months, and the official view may be similar although forecasts are not quite at that level. A few days earlier, central bank governor Zeti Akhtar Aziz said that interest rates should not be the only way to deal with inflation, apparently endorsing what has been a tacit policy of allowing the MYR to rise to offset high import costs. Even after the mid-May correction, the MYR has risen more this year than the regional average. However, some are linking the rise in the currency to the slowdown in export growth in March and especially April. Zeti specifically denied this and is probably right, so far. There may be a link between slower export growth and below-par April industry output but once again gross revisions in last month's result leave room for doubt that the result will stay the same. It thus takes a little time for reliable trends to emerge and it is too soon to be really worried about output. The manufacturing sales data are even less reliable and also less useful, though they too showed a slowing in April.

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Malaysia: Inflation Down in May but Impact of Power Tariff Hike Awaited; Zeti Acknowledges Use of Myr to Counter Inflation; Weaker April Output and Sales No Worry Yet

Inflation falls again, to lower than expected 3.9% in May

The Department of Statistics (DOS) announced on 21 June that consumer price inflation fell back to 3.9% in May, well down from 4.6% in April and a seven-year high of 4.8% in March, and before that much lower inflation of 3.2% in both February and January. After soaring 1.5% on the month in March, prices were unchanged in April and rose a mild 0.2% in May. The sharp increase in March prices stemmed largely from a bigger than expected rise in fuel prices on 28 February, when the government hiked the pump prices of petrol and diesel by about a fifth in a bid to cu...

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