Dip in inflation may reflect slowing demand, say economists

Free Malaysia Today

3 days ago

The 1.2% inflation rate recorded in the country last month reflects a similar trend observed in South Korea, Indonesia and the Philippines, according to the statistics department.
PETALING JAYA : The low inflation rate recorded for the country last month should ease living costs, but may also reflect subdued consumer demand which could threaten economic growth, according to economists.
Malaysia's inflation rate stood at 1.2% in May—down from 1.4% the previous month— driven by falling global oil prices, the statistics department said on Tuesday.
It said similar trends have been observed in South Korea, Indonesia and the Philippines.
Ahmed Razman Abdul Latiff.
Ahmed Razman Abdul Latiff of Putra Business School told FMT that the low inflation rate was indicative of stability in the cost of living, with prices not rising at a rapid pace.
'But a lower inflation rate might also reflect weakening market demand, meaning that consumers are no longer spending as much they did as before,' he said.
AmBank chief economist Firdaos Rosli said the current conditions resemble those of late 2019, when inflation eased amid heightened consumer caution.
Firdaos Rosli.
While the US-China trade war was the key issue then, today's concerns include US policy changes and global tensions, said Firdaos.
However, he said the low inflation rate did not align with the country's low unemployment rate of 3.0% in April.
'Simply put, despite tight labour market conditions, subdued consumer demand suggests a low propensity to spend amid uncertainty,' he said.
Sunway University economist Yeah Kim Leng said a low inflation rate would be 'a positive' if it was driven by declining supply costs in the form of cheaper raw material, better technology, or improved efficiency.
Yeah Kim Leng.
'But if it's due to falling demand, it's a concern as it means reduced spending,' he said.
He also said that price controls on 30% of the items in the consumer price index may be suppressing inflation artificially.
Yeah said that while a low inflation rate would help with the cost of living and give the government room to adjust its policies, the recent increases in global crude oil prices could push inflation up in the coming months.
He advised the private sector to stock up on goods before prices rise further in the wake of higher crude oil prices.
Barjoyai Bardai.
Meanwhile, Barjoyai Bardai of Malaysia University of Science and Technology said that May's inflation data did not reflect recent geopolitical developments.
Barjoyai said that while the data looked positive, the Israel-Iran conflict would push prices higher, especially for food.
'In June—that's when we'll really see the impact. If inflation remains low beyond next month, then we can say the economy is on the right track,' he said.