The Contours of Inflation

This has been the hot button topic of the year, pretty much everywhere around the globe. Inflation has accelerated in many countries, but at very different rates. Regardless, there has been a general withdrawal from both fiscal and monetary stimulus across both developed and developing countries, though the results remain to be seen.

Before getting into any analysis, this is what inflation in Malaysia looks like (log annual and monthly changes; 2000=100):

For those coming across this for the first time, I generally track inflation via four different indices: the CPI and PPI from DOSM, a core measure that excludes food and transport, and a pain index that is only food and transport. I haven't talked much about the PPI in the past, but I'll include that in a future post because in this particular period, it's quite important. Also, my core measure is slightly different from the one compiled by DOSM, but they're pretty close.

The first and most important point from the chart above is that overall inflation in Malaysia is roughly back to its long term average. The second important point is that it is almost exclusively food and transport that is driving the increase in the price level. Core inflation has also been rising, but nowhere near to the same extent and its also been going up in fits and starts, not a steady continuous rise.

Here's looking at the three indices from a level perspective (2000=100):

Looking at the raw levels is always useful, especially when you get structural breaks in the data (like yes GST, no GST, or a sudden pandemic).

Note that core prices, ie everything but food and transport, has not seen anything like the increase in those prices. A second point is that the steepness of the line for core prices has been relatively flat for the last five years or so. Inflation (the rate of change of prices) is evaluated as the slope of the price index over time, so a flatter slope indicates weak price pressures. All that is rather telling, pointing to weakness in domestic demand generally, even with the slight uptick in the most recent data. The indications are that inflation is Malaysia is being driven by external prices, not domestic pressures.

In the queue after this, delving into national comparisons, theory, empirics, and MMT.

Technical Notes:

CPI data from DOSM

When Deflation Isn’t Deflation

It’s been an awfully long time since I wrote a post. There have been a lot of reasons for the hiatus, both professionally as well as personally. The change in government last year also caused some switches in senior management where I work, and my workload has risen as a result. At a personal level, the passing of my father in June and wrapping up his estate has taken a toll on the entire family, which obviously took up a lot of time. I’ve also been spending more time on my fitness level, since hitting the big 50 milestone last year. With all these things going on, blogging has taken a bit of a backseat for the past year. On the other hand, I first started writing this blog 10 years ago this month, and it has been a major part of my life, and I’m determined that it will continue to be. So as an entrée back into blogging regularly, I’m going to address the hot topic of the week: Deflation.

The Return of Inflation?

A couple of things here:

1. Malaysian inflation will zoom this year. No, really, for real!
2. Uh, no, not really.

What’s with the two seemingly contradictory statements?

This is what we have up to January 2017 (log annual and monthly changes):

The Consumer Price Index: Updated and Revised

In case you missed it, last month’s CPI numbers from DOS came with some changes.

First, the basket weights and components were updated to reflect 2014’s Household Expenditure Survey. This included adding 32 items, and removing 12. Weight changes were also made – as I suspected might happen, the drop in crude oil prices resulted in a reduced weighting for transport costs. Utilities costs (rent, water, electricity and gas) saw the biggest increase in weighting.

Second, the approach that DOS had taken previously was to rebase the CPI series to the new base year (2015 in this case). Instead, this time they’ve added to their methodological arsenal by chain-linking the new series to the old 2010 series. Essentially, they’ve saved researchers a lot of time and grief by splicing the new and old series together, so we don’t have to.

Assessing July

I’m back from my usual Ramadhan blogging break, and my, aren’t there lots of things to comment on. This will be a kind of omnibus blog post, covering some of the developments over the past month.

2Q2015 GDP Growth

A funny thing happened with the change in national accounts base year to 2010 – the economy all of a sudden got a lot harder to forecast. The usual indicators no longer seem to matter as much – for example, MIER’s confidence indices appear to have totally decoupled from GDP – which makes forecasting growth more than a little bit more difficult. IPI and trade remain good predictors, but their standard deviations have doubled and the forecasts are suggesting two completely different pictures of the economy.

April 2015 Consumer Prices: GST and Inflation

Again, a couple of weeks late, but this is interesting enough to talk about, even at this late date.

With GST implemented in April, you can see the jump in the price level (log annual and monthly changes; 2000=100):

The key points here are that the drop in petrol prices dampened, but did not fully offset, the overall impact on prices. Year on year growth of the Pain Index was just 0.04% in log terms, after three straight months of declines. Core inflation (ex-food, ex-transport) however, hit 3.5% on the year, and a blistering 1.6% on the month.

January 2015 Consumer Prices

I’m back from my CNY break, and I hope everyone is back home safe and sound at this beginning of the Year of the Goat.

Last week’s inflation report was a huge surprise, not so much because inflation was down, but the magnitude far exceeded expectations (log annual and monthly changes; 2000=100):

Dec 2014 Consumer Prices

With the (slight) fall in petrol prices, the aggregate price level moved a little lower in December (log annual and monthly changes):

August 2014 Consumer Prices

Prices in August took another blip upwards (log annual and monthly changes; 2000=100):

July 2014 Consumer Price Index: Nothing To See Here, Move Along

Wednesday’s inflation report saw the CPI rising by 3.2% (log annual and monthly changes; 2000=100):

Data Releases for July 2014

I’m back from my usual Ramadhan blogging sabbatical. It’s been a bittersweet month – the economy is chugging along better than I ever hoped for and the German demolition of Brazil in the World Cup semifinals was a hoot to watch, but then there was the staggering blow of the MH17 tragedy and the incomprehensible Israeli invasion of the Gaza strip on the very same day. Geo-political risks appear to be increasing, while the global economy remains on a fragile footing, the US recovery notwithstanding.

May 2014 Consumer Prices

Inflation? What inflation? (log annual and monthly changes; 2000=100):

The annual rate of increase across all three of my inflation measures appears to have peaked – the monthly rate of increase for May is virtually zero i.e. there’s been precious little price changes between April and May.

April 2014 Consumer Prices

The CPI numbers for April were released late on Wednesday, and they point to benign inflationary pressure (log annual and monthly changes; 2000=100):

The annual change is still high, but the monthly growth numbers show the impact of price hikes of subsidised goods has dissipated away, showing little in the way of any pass-through into other prices.

March 2014 Consumer Prices

March is the first month that we can see the impact on inflation from all those subsidy cuts and rate hikes in the last six months. It’s also the first month where we’re completely clear from the seasonal effect of CNY. The prognosis – nuthin’ much going on (log annual and monthly changes; 2000=100):

While the headline rate is still elevated on a y-o-y basis, price increases have fallen back to “normal” levels. Core inflation is a little higher than the average for the last 5 years, but food and energy prices barely budged.

February 2014 Consumer Price Index

Question: Has there been an increase in inflationary pressure in the last few months?

Question: Has weakness in the Ringgit contributed to domestic inflation in Malaysia?

I think the answers might surprise a few people, for so far the answer to the first is no (at least, not yet), and the answer to the second is both yes and no.

Let me explain.

December 2013 Consumer Prices

Consumer prices rose 3.2% in log terms in December (log annual and monthly changes; 2000=100):

November 2013 Consumer Prices

Consumer prices in November (released last Wednesday) has continued to accelerate (log annual and monthly changes; 2000=100):

October 2013 Consumer Prices

October consumer prices accelerated slightly in October (log annual and monthly changes; 2000=100):

September 2013 Consumer Prices

I’m going to be late with my 2014 Budget assessment because of work deadlines on other things. Even this post will be a bare bones look at September’s increase on consumer prices, as interesting as it is (log annual and monthly changes; 2000=100):

August 2013 Consumer Prices

Consumer price inflation for August was released a couple of days ago (log annual and monthly changes):