Malaysia's Dec inflation rate at 3.5 pct y/y, meets forecast

Malaysia's Dec inflation rate at 3.5 pct y/y, meets forecast

The relatively flat result this quarter leaves the consumers price index (CPI) inflation rate at 1.6% for the December 2017 year.

The timing of a rate increase is being complicated by a general election, which must be held by August 2018.

"The combination of strong economic activity and inflation momentum suggests that it is appropriate for the BNM to gradually remove some monetary accommodation", Australia & New Zealand Banking Group's Radhika Piplani and Sanjay Mathur wrote in a note to clients.

The increase was lower than the rise at the end of 2016, meaning annual inflation dropped to 1.6 per cent, the lowest in annual rate in 12 months.

"Today's data, along with our belief that the economy is set to go through somewhat of a near-term growth wobble, see us pushing out our expectation for the first [official cash rate (OCR)] hike to mid-2019 (from November 2018)", ANZ senior economist Phil Borkin said.

The Reserve Bank is mandated with keeping annual inflation between 1-and-3 percent over the medium term with a focus on the mid-point.

The kiwi dropped to 73.29 USA cents as at 12.05pm from 74.30 cents immediately before government data showed the consumers price index rose at an annual pace of 1.6 percent in the December quarter, below the 1.9 percent pace predicted in a poll of 13 economists surveyed by Bloomberg and the Reserve Bank's projection for an annual rise of 1.8 percent.

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New Zealand inflationary pressures remain incredibly weak. "And, with this release raising numerous questions about the strength of inflation moving forward, it reinforces that there is no need for the RBNZ to raise interest rates anytime soon", she said.

"Petrol prices were up in the December quarter, following two quarters of falls", prices senior manager Jason Attewell said.

The hefty petrol price hike was the main driver behind this. "Rising oil prices and a falling exchange rate pushed prices up sharply between July and November this year".

Inflation for goods increased 4.1% year-on-year for December, and the inflation for services increased by 5.3% year-on-year. In the year to December 2017, construction prices rose 5.3 percent across New Zealand, led by a 6.5 percent increase in Auckland. "Prices fell for tomatoes, lettuce, and other salad foods". Prices also rose 3.1% in Wellington, and 5.8% in the rest of the North Island. Clothing prices fell 1.8%, led by lower prices for women's clothing (down 2.3%).

The CPI rose 3.5% in December 2017 from a year earlier, mainly because of costlier transport and food and non-alcoholic drinks.

"This [fall] partly reflects changing pricing structures, as major retailers have moved away from using short-term discounts or specials, to holding some prices consistently lower", the agency said.

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