Quick Summary

• Malaysia’s headline consumer price level continued to grow at a tepid pace in April 2022 as the index expanded 2.3% y/y, slightly faster than March’s 2.2% growth.
• This is amidst a high base effect back in April 2021 when the index grew strongly by 4.7% y/y and in line with Bloomberg’s median consensus of 2.3%.
• Core inflation rate, which does not measure volatile items of fresh food and administered prices, increased to 2.1% from 2.0% in the prior month, marking the highest level since Jan 2018.
• We are seeing slower inflation growth rate here in Malaysia compared to other countries thanks to the fuel price ceiling and certain food item subsidies implemented by the government. Furthermore, the recent government’s decision to not impose the approval permit (AP) on food importation and a ban on chicken export may put extra constraint on inflation rate growth.
• For 2022, we are maintaining our headline inflation projection at around 2.8% and 3.0%. From the monetary policy’s perspective, we are expecting another 1–2 OPR rate hikes this year, which resulting the OPR to hover around 2.25% to 2.50% OPR by the end of this year.
• Malaysia’s headline consumer price level continued to grow at a tepid pace in April 2022 as the index expanded 2.3% y/y, slightly faster than March’s 2.2% growth. As such, the average inflation for the first four months of 2022 stood at 2.2%.
• This is amidst high-base effect back in April 2021 when the index grew strongly by 4.7% y/y and in line with Bloomberg’s median consensus of 2.3%. Looking at the monthly economic performance, the Consumer Price Index only rose 0.2% m/m, slightly slower than the previous month’s 0.3%.
• Core inflation rate, which does not measure volatile items of fresh food and administered prices, increased to 2.1% from 2.0% in the prior month, marking the highest level since Jan 2018. The inflation rate excluding fuel climbed to 2.2% from 2.0%.
• Component-wise, prices for food & non-alcoholic beverages surged 4.1% y/y in April 2022 (March: 4.0%), which is the fastest pace since late 2017; prices for restaurants & hotels rose 3.2% (March: 2.9%), the largest increase since early 2016, while prices for transport climbed 3.0% (March: 2.6%).
• Cost-push factors such as firm global commodity prices, supply chain bottlenecks and rising transportation costs continued to be the main narrative globally, but thanks to the fuel price ceiling and certain food items subsidies implemented by the government, we are seeing slower inflation growth rate here in Malaysia compared to other countries.
• The government’s decision to not impose the approval permit (AP) on food importation to prevent food shortage may put extra constraint on the inflation rate growth. It will cut the “middle-man” cost and abolish any monopolistic dynamic in the food industry. Also, the ban on chicken export could stabilize the domestic supply and price level albeit it only works in shorter term period.
• However, the concern here is that if the government is willing to continue paying subsidies as global food and oil prices get increasingly higher. The recent decision by the government to shift to targeted oil subsidy rather than blanket subsidy is seen as a signal that the costs are too much for them to bear. Added with the weakening ringgit, importation costs will rise further.
• Apart from that, the unexpected interest rate hike by Bank Negara Malaysia (BNM) should help cool the demand-pull side of inflation due to higher borrowing costs. Core inflation, a proxy for demand-pull indicator, has already reached multi-year high.
• For 2022, we are maintaining our headline inflation projection at around 2.8% and 3.0%. From the monetary policy’s perspective, we are expecting for another 1–2 OPR rate hikes this year, which translate to 2.25% to 2.50% OPR by the end of this year.

Source: AmInvest Research - 26 May 2022