Malaysia central bank sees inflation exceeding 8-year high
The recent spike in Malaysia’s inflation rate to above the 4.5 per cent rate, is possibly attributable to increased crude prices as well as prevailing weakness in Ringgit. The following charts show the correlation:
Rising inflation will lead to rising yield in the debt markets:
What does this mean for equity market? Before 2013, debt yield has negative relationship with performance of stock market (i.e in a declining debt yield environment, the stock market tends to do better). Post-2013 onwards, we are seeing a rather mixed relationship between the two markets. Nevertheless, in general, a rising debt yield would tend to mean people would expect a higher return for equity market and as such, this would translate to lower prices for the equity market.
Would inflation continue to rise?
Based on forecast model by TradingEconomics, inflation may have potential mean reversion and may adjust to a lower range of 3.2% – 3.6% by Q3-Q4 of year 2017:
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