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Prices of consumer goods likely to increase gradually [26-07-2012]  
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Prices of consumer goods are likely to rise gradually towards the year-end, said CIMB Research.

CIMB Investment Bank Bhd economic research head Lee Heng Guie said factors that contributed to the rise included higher festive demand, supply disruptions from bad weather and costlier raw materials due to ringgit weakness.

“That said, we believe the Government's intervention should help keep food inflation and other commodities-induced price pressures manageable, such as fuel and food subsidies, ample domestic rice supplies with a relatively high rice self-sufficiency level of 73% while Malaysia imports about 30% of its annual rice consumption, and price stabilisation measures should food prices go through the roof,” he said in a statement.

He said when rice prices spiked in mid-2008, the Government imposed temporary measures such as setting a ceiling price for rice and introducing a “Rice Subsidy for the People” scheme, which gave out RM24 and RM10 vouchers.

“We also believe that with looming general elections, the Government will carefully manage inflation expectations to minimise the impact on lower-income households,” he said.

CIMB Research expects higher price pressures to only come through next year, when the Government resumes its subsidy rationalisation plan (after general elections), albeit it is likely to reduce the subsidies in a gradual manner, and when the minimum wage policy comes into effect in Jan 2013.

“Therefore, we think inflation will pick up from an estimated 1.8% this year to 2.5%-3.0% next year,” said Lee.

In a wider scale of things, he said both headline and core inflation in most of Asia remained lukewarm, with the notable exceptions of India and Singapore.

“But the tame outlook may not last long as the El Nino dry spell effects or drought in major producing countries could disrupt production and supply. Meanwhile, higher commodity prices and rising food costs are stoking concerns that food inflation may rear its ugly head again,” he said.

He said with Asian economies battling slowing growth momentum, the return of food inflation could bite into consumer spending.

The research house expects inflation in most countries in Asia to show an upward bias in second half 2012 and 2013, driven by ebbing favourable base effects, festive demand and the anticipated bad weather-induced risks, such as higher commodity prices and rising food costs.

“That said, the inflation outlook should remain benign when compared to 2007-2008 levels,” he said.

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