4Q 2021 GDP: The Good, The Bad, and The Ugly

It's taken me this long to really delve into last week's GDP report, largely because I wanted to try something different (results forthcoming). But before getting into that, the headline numbers themselves are mostly encouraging (log annual and quarterly SAAR changes):

Chart of the Week: Malaysian House Price Inflation

There’s inflation, there’s food inflation, but then there’s house price inflation (quarterly index numbers; 2000=100):

Technical Notes:

1. Inflation numbers from the Department of Statistics Malaysia
2. Malaysia House Price Index from NAPIC

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):

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):

July 2013 Consumer Prices

Overshadowed by last week’s release of GDP data were five (count’em, five) other important data releases, one of which was the report on July consumer prices. Needless to say, the report showed accelerating price increases (log annual and monthly changes; 2000=100):

April 2013 Consumer Prices: Edging Up

Inflation continued to edge up in April, this time almost entirely due to food prices (log annual and monthly changes; 2000=100):

December 2012 Consumer Prices

The rate of increase in consumer prices in December has continued to slow, pretty much across all measures (log annual and monthly changes; 2000=100):

July 2012 CPI: Still Retreating

Tucked between the news on GDP, the latest consumer price index numbers show inflation continuing to decelerate (log annual and monthly changes):

The overall index is down, core inflation increased slightly on the month, but was offset by a decrease in the pain index. In fact the annual rate of increase in food and transport prices is now at its slowest pace in more than two years (since March 2010).

May 2012 Consumer Prices

The latest report on the CPI from DOS released last week shows the first uptick in the general price level since last year (log annual and monthly changes; 2000=100):

January 2012 CPI: Oh, The Pain

Prices in January rose 0.3% compared to December 2011, even as the annual growth turned down (log annual and monthly changes; 2000=100):

November 2011 CPI: Prices Sticking

Some nice news for once – prices in November barely budged over October (log annual and monthly changes; 2000=100):

Increases in core prices remained uncomfortably high, both on annual and monthly measures, but overall increases in prices decelerated, mainly as aggregate food prices didn’t increase at all (log annual and monthly changes; 2000=100):

September 2011 CPI: No Relief

Yesterday’s inflation report from the Department of Statistics shows inflation remaining at an elevated level (log annual and monthly changes; 2000=100):

Dec 2009 Consumer Prices

Inflation has remained benign over the past year. DOS reports that consumer prices only rose 0.6% for the whole of 2009, but that mild figure hides a lot of movement underneath. For instance, the food and non-alcoholic beverages index rose 4.1%, but transport costs dropped 9.4%. And of course, 2008's inflation rate of 5.3% was the highest since the CPI rose 5.5% in 1982, so there's a base effect from the wild ride in fuel prices in 2008.

Minus that aberration, the CPI has been on a fairly steady and consistent uptrend (with little change in slope) since 2003 (index levels, 2000=100):

You can see this pattern in the growth (i.e. CPI inflation) figures as well:

Note that month-on-month growth is rarely above 0.3%, and only twice above 1% in the last ten years. The core inflation story is even steadier - at least using my pseudo-core measure (dropping food and trasnport indexes):

Core monthly inflation averages out at about 0.1%, so most of the upward pressure on inflation is coming from food and transport costs. Even then there are some counterbalances, such as clothing and communication prices, which have consistently been going down over at least the last five years:

So this coming year, sans another zoom up in oil prices, inflation is probably going to stay quiet, even with the new petrol subsidy scheme coming into effect in the middle of the year and even as BNM keeps interest rates low.

The proximate problem that BNM has to deal with vis-a-vis inflation is really structural. Consider the continuous drop in clothing prices, which is primarily a result of the shift of textile manufacturers to low-cost production bases in places like Indonesia and Vietnam (and yes, China). Part of the problem facing many monetary authorities this decade is that with the almost sudden emergence of these low-cost exporting economies in the late 1990s, global goods prices have held steady or dropped which obviously colours consumer decisions on spending. Yet the increase in consumption did not result in inflationary pressures (at least until 2007-2008), or upward pressure on wages or interest rates. Hence central banks stood by, despite a consumption boom and bubbles in many asset markets.

How we deal with this issue in the future is still being debated, though I suspect that eventually the problem will solve itself over the next decade as labour costs continue to rise in the exporting economies.

Technical Notes:
1. Consumer Price Index report from DOS.
2. Want to know how to get quarterly or annual index numbers from the monthly numbers? Simple...just average out the monthly indexes for the period in question. For instance, the Q1 2009 CPI number is just the average of January-March 2009 monthly index readings. The 2009 CPI is gotten by averaging the monthly index numbers from January to December 2009.

September CPI: Raya Blues Again

Almost loss in the shuffle of Friday's budget was the CPI report for September. Not that there were any surprises (index numbers, log annual and monthly changes, 2005=100):





As the impact of the fuel price hikes in July fade, you'll see inflation ticking up again. The faster pace of price increases in September can be squarely blamed on Ramadhan, for obvious reasons. To underscore this, here's the chart for my pseudo-core inflation measure(index numbers, log annual changes, 2005=100):





Note that even as growth in the main index started climbing, growth in the core index has dropped. Reading the numbers from DOS' report shows food, transport and miscellaneous items contributed to the bulk of the increase.

Otherwise, I'd consider September's developments encouraging. Price pressures indicate higher economic activity, which augurs well for a higher consumption reading for 3Q 2009. But again, that's really just the Raya effect, and not necessarily a symptom of a more solid rebound in the economy.

Malaysia March Inflation Report

Nothing unexpected out of today's inflation report:



But we've had negative m-o-m growth since last August:



...driven by changes in these two categories (2005=100):




While the y-o-y number is more relevant to policymakers and investors, from a psychological standpoint the m-o-m number is probably more important in defining consumer and business behaviour. We're very likely to see negative numbers in the headline y-o-y rate, simply because of the high base level of last year. But on the ground, sustained deflation would be driven by what people see on a day to day basis.

Which is why I'm as much interested in what the level of the CPI is doing rather than its changes:



An essentially flat CPI, while not as dangerous as full-fledged deflation, can have the same dampening effect on businesses and consumer spending if only to a lesser degree. With a large output gap, flat price level and very low interest rates, businesses have no pricing power and workers no leverage for income increases. This can push back recovery further into next year.

We won't have March monetary aggregate data until next week, but M2 and M3 growth are slowing down faster than I'd like. No bets on whether BNM will cut interest rates at next week's Monetary Policy Committee meeting - I think it's a question of how much rather than yes or no.