Examination on the asymmetric effects of commodity price changes on sectoral CPI inflation of Malaysia

The movement of global commodity price is the main concern of the public due to its influences on production cost, expectation of investors, responses of policy authorities and the performances of economies globally. In this study, we focus on the examination of the commodity price changes on the sectoral consumer price index (CPI) changes in Malaysia. The effects of commodities are compared by energy, non-energy and precious metals. The Markov-switching regression is innovated to include the asymmetric effects of commodity price increases and decreases. In particular, we seek to compare how commodity price increases and decreases vary across sectoral consumer price changes in Malaysia. Our results detect asymmetric of commodity price changes on CPI inflation across sectors, the effects vary across sectors. Non-energy and precious metals have larger impact on CPI of beverages, food and transportation. The effect of energy commodity is limited by the implementation of policies such as price control scheme and subsidies. Besides, CPI of clothing and recreation show tendency to increase while majority sectors are stable.