Subdued inflationary pressure expected in 2020

Headline inflation is projected to average within the range of -1.5 percent to 0.5 percent in 2020 compared to 0.7 percent in 2019.

Bank Negara Malaysia (BNM), in its Economic and Monetary Review 2019 released today, said the downward pressure on inflation predominantly reflects the expectation of significantly lower global oil and commodity prices.

“Without the direct downward impact from lower global oil prices, underlying inflation as measured by core inflation, is projected to remain positive averaging between 0.8 percent and 1.3 percent versus 1.5 percent, last year,” the central bank said.

It said this is amid subdued demand pressures that reflect the negative output gap expected this year.

“While potential output is expected to grow between 4.3 percent and 4.8 percent, actual output will be significantly affected by the adverse impact from Covid-19.

Hence, actual output is likely to continue to grow at a slower pace in relation to potential output in 2020.

In 2019, potential output grew moderately at 4.5 percent compared to an average of 5.0 percent due to contraction in investment activity at -2.1 percent due to softer business sentiments and continued rationalisation efforts by the government.

This, however, was partially offset by the marginal improvement in the labour force growth of 2.1 percent in 2019 versus 2.0 percent in 2018.

The labour market conditions are expected to be weaker in 2020.

- Bernama