Heat mounts as inflation jumps in December…Is PM listening? ‘Psychosclerosis’?

6:19PM Jan 22, 2014 (MKini)

Malaysia’s inflation rate jumped in December, exacerbating a political headache for the government over rising living costs and increasing the chances of an early hike in interest rates this year that could further dampen consumer sentiment.

The statistics department said on Wednesday that the consumer price index rose to 3.2 percent from 2.9 percent in November, the highest level since November 2011 and up from 1.2 percent a year earlier. A Reuters poll had forecast it would pick up to 3.1 percent.

Faster price rises are partly a result of a series of subsidy cuts introduced by Prime Minister Najib Abdul Razak’s government last year that have eased concerns over the Southeast Asian nation’s high debt burden and fiscal deficit.

The measures triggered a 10 percent rise in petrol pump prices and a 15 percent hike in power tariffs that are filtering through to prices of other staples such as vegetables and meat.

Faster inflation is likely to prompt the central bank to raise its benchmark rate from 3 percent this year, the first change since mid-2011. Economists are expecting a hike of between 25 and 50 basis points.

A weakening ringgit currency, which is down 1.5 percent since the start of the year and at five-month lows against the dollar, could add to upward pressure on prices through more expensive imports, and reinforce the case for raising interest rates.

Those inflationary pressures, combined with high levels of household debt, soaring property prices and, by comparison, relatively weak wage growth could leave Najib vulnerable to criticism from rival factions within his own party – Umno.

There is festering discontent with Najib among conservatives in Umno after its multi-ethnic BN coalition only narrowly scraped an election victory last May.

Still, most economists expect Malaysia’s economy to grow at a robust 5 percent or more this year, following an expected 4.5-5.0 percent growth last year, helped by a brighter global economy that should fuel its vital export sector.

Feeling the pinch

But an outcry by consumers and the political opposition over the price jumps has stung the government and could lead Najib to consider delaying some further belt-tightening plans, analysts say.

Najib was widely ridiculed in online media in recent weeks for saying that the price of local vegetable kangkung (water convolvulus) had fallen, despite price rises for most other goods.

Food and transport prices were among those that rose fastest in December from a year earlier, gaining 4.5 percent and 5.0 percent respectively.

The government last week set up a special cabinet committee to tackle the cost of living and has dispatched ministers to visit local markets to warn against price gouging.

Rahul Bajoria, an economist at Barclays Capital in Singapore, said the government could delay plans for road toll hikes and increase cash handouts for poorer Malaysians, but was unlikely to backtrack on its main fiscal tightening steps.

“The fiscal situation needs to be controlled,” he said. “The government is in the first year of its new term, I don’t think that it will really turn populist at this point.”

Two-thirds of Malaysian households earn less than RM5,000 ringgit per month, according to the most recent data. Consumer debt in Malaysia is the among the highest in Asia at around 83 percent of GDP.

Surging housing prices in major urban centres like Kuala Lumpur, which aren’t reflected in inflation figures, have added to middle-class angst over the cost of living.

“The property market really adds to the feeling that things aren’t improving,” said Nor Zahidi Alias, chief economist at the Malaysian Rating Corporation.

Indebted consumers could take another hit this year if a weakening ringgit and higher inflation force the central bank to tighten monetary policy more than expected.

Later in the year, the government is expected to announce a further cut in fuel subsidies, followed at the beginning of 2015 by the introduction of a new consumption tax at 6 percent.

“This year is not going to be as benign as last year,” said Nor Zahidi. “Inflation going to be a little bit hotter, especially in second half of the year.”



3 thoughts on “Heat mounts as inflation jumps in December…Is PM listening? ‘Psychosclerosis’?

  1. On diesel petrol subsidies, the gomen acted % years too late. they should have allowed market prices to dictate when oil prices dropped to USD40/bbl in 2008/2009. But at USD40/bbl. the gomen was making money from petrol/diesel and they stayed silent. Now that the prices have gone up, they are caught again.
    The reason for inflation is our depleting RM. If the gomen is serious, they should try to make the RM2.5 to USD1. They can do this by controlling monetary supply and upping the interest rates. The more the inflation, the less the people will spend.

  2. For those affected just wait till the implementation of the GST when the whole country, irrespective of how much you are earning. Including those who are not paying taxes, they will still have to pay for the GST for the rice they eat daily, the food they consume plus above all everything they consume including their utility bills.
    This nightmare is just a year away so if you can manage to scrap by presently just you wait till the implementation of the GST. This must be an indication of the desperation of Najib and the Umno warlords. Especially when they have all the financial datas in front of them that without the introduction of these new taxes, the only road for the country to go to is bankruptcy !
    In the circumstances they are in yet nothing is done about the annual auditor’s report that so much is being siphoned away by the civil servants. Have Umno taking any actions to prevent these ‘expenditures’ ? Or are these inflated ‘expenditures’ are viewed as rewards for the civil servants for keeping them as tenants in Putrajaya ? To date not one of these civil servants ‘expenditures’ has being brought to account for them.
    Why then do we need to have auditors or even the need to have their reports ?


    The overriding global message is that Russia & China are leading a movement across the entire East to de-throne the King Dollar, and to work toward alternative trade settlement. Russia & China are at an advanced stage to replace the USDollar in its key role as trade settlement medium and global reserve currency within banking structures. While the New York banks are using heroin packed bricks in overnight settlement in shadowy chambers, the Eastern nations are using actual gold bricks on an increasing basis in well lit chambers. A Global Paradigm Shift is in progress. The arrival of the Gold Trade Settlement is well along. The hints are the Iran Petro-Gold phenomenon, which is detailed in the January Hat Trick Letter. Other hints of a broken USTreasury Bond market are the outsized dumping of USTBonds in the Indirect Exchange channel, the buyer strike at new USTreasury auctions, the raking in of 90% of the USGovt debt issuance by the USFed itself, and the obscene abuse of Reverse REPOS by the USFed (which the stooge dullard simpleton public cannot possible comprehend). The Reverse REPO is hidden QE by another name. Other hidden QE is being helped along by the Euro Central Bank, using the Brussels office that is visible from the TIC window. The usual Caribbean office is not used as much as in the past, probably because heavy volume cannot easily be concealed. They are moving more drug money lately than USFed or Bank of England funds. More details are seen in the Hat Trick Letter.

    Downward pressure in the TNX will be seen in the poor economic results and application of the interest rate derivative machinery. Upward pressure in the TNX will be seen from the global USD/USTBond rejection and recognition of the USFed Taper Talk falsehood deception (head fake). The USFed is on course to lose all remaining credibility. Their prestige vanished with the introduction of the Quantitative Easing against the ZIRP zero bound rates, now into their third and fourth years. Five key important points dominate the global landscape like a gigantic billboard.

    1) QE to Infinity is being recognized, the Taper Talk widely seen as a ruse and propaganda to defend the broken USDollar, another turn in the road.

    2) The Geneva Iran Talks can be better described as the Petro-Dollar Surrender Talks, another turn in the road.

    3) The Boyz might misjudge that the derivatives can prevent a powerful breakout above the critical 3.0% and toward the initial 3.5% target, as the London Whale incident was a turn in the road.

    4) The Indirect Exchange seen in broad USTBond dumping is a new dangerous disruptive trend, the Rosneft buyout of the BP oil stake another turn in the road.

    5) The pension and bond funds as well as insurance sector demand higher bond yields for carry income, a breakdown coming.


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