No deflation in Malaysia, no recession in US — BNM governor

KUALA LUMPUR (March 28): Bank Negara Malaysia’s (BNM) governor Datuk Nor Shamsiah Mohd Yunus (pictured) brushed aside growing concern about deflation arising from the drop in Consumer Price Index for two consecutive months.

Also, Shamsiah reiterated the central bank’s view there are no indications of a recession in the US but noted a slowdown in global growth.

“When you look at the US economy, the labour market is at full employment, job creation is at an all time high and wages are still increasing,” said Shamsiah at the media briefing in conjunction with the release of Bank Negara annual report 2018 yesterday.

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On concern over deflation, she stressed that the drop in CPI recently is not the case of deflation. “Let me be very clear that this (deflation) is not the case. Deflation occurs when price declines are broad-based. We do not observe a widespread price decline that typically results from a collapse in aggregate demand,” said Shamsiah.

She highlighted that the drop on CPI experienced in Malaysia was solely due to lower domestic fuel prices, adding that this was not caused by a severe drop in spending whereby firms have to cut prices.

In contrast, the governor noted that risks of deflation is low as the CPI basket indicated that more than half of the items were still experiencing price increases.

“That does not mean a broad-base decline in prices,” said Shamsiah, adding that removing the impact of price volatility and price administered items would enable a better sense of underlying price pressures.

She added that risks to deflation are dependent on the policies that the Government may introduce, coming festive seasons which are accompanied by price ceilings on certain essential items, and trajectory of global oil prices.

Having said that, Shamsiah said the core inflation, which excludes factors such as the impact of consumption and tax policy changes has been stable and consistent with a steadily expanding economy.

BNM expects headline inflation to be broadly stable, averaging between 0.7% and 1.7% in 2019. — theedgemarkets.com

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