Malaysia's inflation predicted to climb to 2.9%

Due to cuts in fuel, sugar subsidies.

According to DBS, Malaysia's inflation will continue to climb higher in November. A forecast of 2.9% YoY has been penciled into its forecast as the effects of the cuts in fuel and sugar subsidies will continue to linger.

Here's more;

To rein in a deteriorating fiscal balance, the government took steps to rationalise its expenditure on subsidies. It cut fuel subsidy in September, followed by abolishing the sugar subsidy in the recent budget. Pump prices have spiked up and food inflation probably will inch a notch higher.

As it is, inflation will likely surpass the Overnight Policy Rate of 3.00% by Jan14 and stay above that level for the first nine months of the year.

But it’ll be temporary and when the base effect lapses, inflation should ease to 2.6% by end of 2014. Full year inflation will likely average 3.0% in 2014, from 2.1% in 2013.

But there is little justification for Bank Negara to start tightening on monetary policy. Growth momentum is already slowing on easing domestic demand while the inflationary impact of policy changes will be transient.

As long as inflation expectation remains moderated by slower growth, the centralbank will most likely maintain a steady keel in monetary policy right through 2014.

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