Tuesday, May 23, 2017

Inflation Perceptions

The Guv on inflation perceptions (excerpt):

Why doesn’t inflation rate reflect cost of living? All about perception, BNM says

KUALA LUMPUR, May 19 ― Bank Negara Malaysia (BNM) suggested today that public perception of inflation tends to be higher than the actual rate, with the bias shaped by their personal experience of paying for food and transport.

This comes as the central bank announced a headline inflation rate of 4.3 per cent in the first quarter this year compared to 1.7 per cent in the previous quarter, owing to the hike in fuel pump prices and shortages of fresh fruit.

“Public perception of inflation is in fact influenced by frequently purchased price such as food. This item typically experience higher inflation.

“However household also spends on other items, such as clothing which are in fact experiencing price decline,” BNM governor Datuk Muhammad Ibrahim said in a press conference here.

This perception is also formed by spending on transport, a sector high price volatility, he said.

In comparison, Muhammad said the Consumer Price Index (CPI), or the inflation rate, is a reflection of overall price changes in economy that reflects average consumption of an average household.

I’ve been writing about this for years (latest here). BNM has also published an article in their quarterly bulletin that actually measures the degree of “misperception” (link here). The latter especially is worth a read. For a really deep look into the whole subject, buy the book!

Tuesday, May 16, 2017

Affin-Hwang Investment Forum 2017

I will be at the Affin-Hwang Investment Forum this Saturday morning for a panel discussion on the Malaysian Economic Outlook. It’s not free, but it’s open to the public. Details here.

Thursday, May 4, 2017

Effective Exchange Rate Indexes: April 2017 Update

The NEER and REER page has been updated, as has the Google Docs version.


For the first time since April last year, the MYR indexes have gained across the board. Having said that, the movement has been relatively small – about 0.22% on a nominal basis, and 0.27% on a inflation adjusted basis. The gains against ASEAN have been smaller, at 0.17% for both real and nominal indexes. The revised data for March however, also shows the MYR sustaining above the 100 pt index mark at 100.49, versus the preliminary reading of 99.85.

On a bilateral basis, the picture is more mixed, with gains recorded against 9 out of the 15 currencies in the broad basket. The biggest gain recorded was against the AUD (1.94%), continuing on from last month’s movement, with the KRW (0.88%) and HKD (0.84%) rounding out to the top-3. The biggest drops were against the JPY (-1.71%), GBP (-1.64%) and INR(-1.20%). The indexes continue to be crossed, with the NEER remaining above the REER.



  1. Indexes have been updated to April 2017
  2. CPI deflators and forecasts have been updated for March/April 2017. There was a technical change in the splicing procedure for Thailand’s CPI deflator, which resulted in some very minor changes to the historical series. This only affects the Real Broad and Real ASEAN indexes.

Tuesday, April 18, 2017

Chart of the Week: Malaysian Residential Housing Stock

The supply side of housing (number of units per quarter; log annual difference; 3Q2002-4Q2004):


In the top chart, the top dotted line is the average from 2002-2008 (about 49.2k per quarter) while the bottom dotted line is the average since (about 24.4k per quarter) . In the bottom chart, the corresponding averages are 5.7% and 2.2%.

So, a big part of the reason why house price inflation increased over the past decade or so is due to the shortfall in supply.

Technical Notes:

  1. Data from various reports published by the National Property Information Centre
  2. Note that the above data series excludes service apartments to maintain consistency (2016 NAPIC data does not include service apartments)

Tuesday, April 11, 2017

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

Wednesday, April 5, 2017

Effective Exchange Rate Indexes: March 2017 Update

The NEER and REER page has been updated, as has the Google Docs version.


MYR is losing out on the emerging market rally. Both indexes continued to decline, despite stability against the USD. There was a slight uptick in the Nominal Narrow Index (top 5 trading partners), but the Real Narrow Index dropped 0.26%, as inflation accelerated faster in Malaysia. The Real ASEAN index dropped the most month on month (-0.76%), but having said that, March marks the first time this particular index has dropped below 100 since June 2000.

Despite this, on a bilateral basis, MYR appears to have turned around, or at least stopped losing ground. Gains were recorded aganst 9 out of the 15 currencies in the broad basket. The nine-month losing streak against the AUD finally ended (+0.65%), with the biggest gain coming against the GBP (+1.31%). The biggest drop was against the INR (-1.65%), followed by the TWD (-0.61%) and KRW (-0.58%).

One last thing: The indexes have crossed, with the NEER now above the REER. This is largely due to inflation in Malaysia accelerating faster than our peers. Technically, if you believe this stuff, that indicates the MYR is now overvalued, though I’d reserve judgement until I get a chance to take into account nominal interest rates as well (standard UIP model).



  1. Indexes have been updated to March 2017
  2. CPI deflators and forecasts have been updated for February/March 2017

Tuesday, April 4, 2017

Chart of the Week: Core Inflation and the Impact of GST

I was struck by a graph I saw the other day, and I’ve tried to reproduce it here. This is the still relatively new Core Inflation Index from DOSM (index numbers, log annual changes; 2010=100):


The graph of the growth (inflation) of the index is truncated because that’s more or less what’s publicly available, but trust me that the longer series shows core inflation at roughly 2% for the two years prior.

This shows very, very clearly the impact of GST, and fulfills the prediction I made nearly four years ago – GST caused an upward shift in the price level, but didn’t cause inflation (as narrowly defined by economists) to rise. It was purely a price level change, and didn’t change the slope of the index. The impact appears to be a roughly 1.8% peak to trough increase in the price level, in line with the MOF/BNM forecast.

Core inflation is currently appearing to accelerate, but that can’t be ascribed to the imposition of GST, which after all happened exactly two years ago.

Technical Notes:

Data from various Consumer Price Inflation reports from the Department of Statistics. NOTE: DOSM’s core inflation index excludes both highly volatile prices (certain seasonal foods such as vegetables) as well as petrol prices (which have been very volatile since the float in 2014). It also excludes prices of goods that are “administered” i.e. those whose prices are either fixed by the government (e.g. rice), or move due to changes in government tax policies (e.g. tobacco and alcohol). Therefore a presents a truer picture of underlying price pressures in the economy. Note that this doesn’t mean stuff doesn’t get more expensive, it just takes away the volatility in inflation, which makes it more useful for policymakers such as BNM.

Wednesday, March 29, 2017

No 47 In My List of Reasons Why Productivity Gains are so Difficult

From a batch of NBER working papers a few weeks ago (abstract; emphasis added):

CEO Behavior and Firm Performance
Oriana Bandiera, Stephen Hansen, Andrea Prat, Raffaella Sadun

We measure the behavior of 1,114 CEOs in Brazil, France, Germany, India, UK and US using a new methodology that combines (i) data on every activity the CEOs undertake during one workweek and (ii) a machine learning algorithm that projects these data onto scalar CEO behavior indices. Low values of the index are associated with plant visits, and one-on-one meetings with production or suppliers, while high values correlate with meetings with high-level C-suite executives, and several functions together, both from inside and outside the firm. We use these data to study the correlation between CEO behavior and firm performance within the framework of a firm-CEO assignment model. We show results consistent with significant firm-CEO assignment frictions, which appear to be more severe in lower-income regions. The productivity loss generated by inefficient assignment is equal to 13% of the productivity gap between high- and low-income countries in our sample.

In short, 13% of the productivity difference between rich and poor countries is due to having roughly 17% of CEOs in poorer countries not spending their time properly (relative to their industry).

And people think it’s about robots.

Technical Notes

Bandiera, Oriana & Stephen Hansen, Andrea Prat, Raffaella Sadun, "CEO Behavior and Firm Performance", NBER Working Paper No. 23248, March 2017

Tuesday, March 28, 2017

Chart of the Week: Why Seafood Prices Have Rocketed

Actually, three charts altogether:


Issue 1: Global fish landings have stagnated since the 1990s. Effectively, demand is increasingly being met through aquaculture.


Issue 2: Per capita consumption has risen drastically, to over 20kg per person, tripling over the past 65 years. Roughly 85% of fish supply is now used for food, up from half in the 1970s. It’s not just population growth that is stressing fish supplies.


Issue 3: Only 10% of global fish stocks are underutilised. The ratio of fishing stocks that are being exploited at biologically unsustainable rates has been increasing, and is more than double what it was 40 years ago.

Technical Notes:

“The State of World Fisheries and Aquaculture 2016,” Food and Agriculture Organisation of the United Nations (FAO), 2016

Tuesday, March 21, 2017

Chart of the Week: Manufacturing Sales

Manufacturing sales versus trend forecast (RM millions):



Technical Notes:

Data from various issues of Monthly Manufacturing Statistics from the Department of Statistics Malaysia

Monday, March 20, 2017

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):


Monday, March 13, 2017

Threat or Help? Unskilled Immigrant Workers

The World Bank’s Malaysia Hub has a new brief on the effect of immigrant workers on productivity (excerpt):

Threat or Help? The Effects of Unskilled Immigrant Workers on National Productivity Growth
Sharmila Devadas

While unskilled immigrant workers have relatively low formal human capital, theory suggests that they can still contribute to productivity improvements by helping to increase efficiency and upgrading the skills of the native labor force. Empirical studies indicate that positive productivity effects do occur. This body of evidence does not provide a compelling argument for the closing of national borders to unskilled foreigners on economic grounds.

TL;DR version: The available evidence doesn’t support any negative impact on productivity, with some countries showing a positive impact. Note that this doesn’t necessarily preclude the possibility that reducing unskilled foreign workers will increase productivity, but it does make it unlikely.