Malaysia’s overall inflation in May 2022 stood at 2.8% y/y. This brings the all-year average inflation to 2.4% y/y.

Malaysia – Inflation increased to 2.8%

Highlights

Malaysia’s overall inflation in May 2022 stood at 2.8% y/y. This brings the first five months average inflation to 2.4% y/y. On monthon-month, overall prices increased by 0.6%.

Core inflation accelerated from 2.1% y/y in April 2022 and 2.4% y/y in May 2022. Hence, the average first five months inflation is 2.0%.

Main impetus for the high inflation was higher food & non-alcoholic beverages, up 5.2% y/y (April 2020: 4.1% y/y).

Specifically, meat prices rose by 9.5% y/y (April 2020: 6.2% y/y), milk, cheese and eggs increased by 8.0% y/y (April 2020: 7.2% y/y) and vegetables increased by 8.1% y/y (April 2020: 8.1% y/y).

Transportation prices in increased from 3.0% y/y in April to 3.9% y/y in May. Petrol prices were flat, where RON95 and diesel were priced at RM2.05/litre and RM2.15/litre respectively. RON97 was higher by 50% y/y, priced at around RM4.00/litre in May.

Key takeaways

The government had decided not to remove the ceiling price for chicken but introduce a new ceiling price. Currently, the price ceiling for a standard whole chicken is RM8.90/kg.

But despite the current ceiling price of chicken is at RM8.90/kg, the average price for chicken in June 2022 was RM9.70/kg. This implies the sellers are selling above the price ceiling by 9.0%. This would certainly have an impact directly and indirectly on overall underlying inflation of household.

We expect the new ceiling price to somewhat mirror the current actual market price for chicken of between RM10 to RM12/kg. This would mean the mere should not be any further material increase in the chicken price.

We hope by reintroducing the new ceiling price for chicken, sellers will be able to accommodate this new price without still eating into their cashflow that has resulted to some winding up. Also by adhering, there would be less pressure both directly and indirectly on the cost of living of households. The weightage of chicken (meat) is 2.5% of overall CPI basket (8.8% of overall food).

Initially, around RM700mil was allocated for controlling the price ceiling for chicken, but only 10% was utilised by chicken breeders. We believe this was the reason the government decided to continue with the price ceiling anyway.

Eggs ceiling price will be removed. Currently, the price ceiling for eggs is around RM0.40/each for eggs depending on the grade. This removal will see a marginal impact on the overall CPI as it accounts of 0.4% of the weightage (1.4% of overall food).

Besides, subsidy for palm cooking oil will be removed. The current price of cooking oil is RM6.70 per 1kg bottle. It is estimated that the bottled cooking oil is costing the government around RM20 mil a month. While this would have some impact on the M40 and T20, the government will maintain subsidy for cooking oil sold in polybag packages at RM2.50 per pack. This would help the B40 segment. The oil segment accounts for 0.50% of overall CPI basket (1.8% of overall food).

We see these changes will bring minimal impact to the overall consumer price index. The food component currently carries 28.4%, where eggs and oil only weigh around 0.9% of overall consumer price index basket.

Also, the government will provide additional Bantuan Keluarga Malaysia (BKM) cash assistance to the B40 with an additional RM100 and RM50 for singles individuals. The payment will benefit around 8.6 million beneficiaries of which including 4 million households 3.4 million single people.

This means it would be an additional RM630 million of cash assistance on top of the second phase of BKM payments of RM1.1 billion.

Plus, the government has also decided that there will be no water and electricity tariff hikes for Peninsular Malaysia.

So, a rebate of 2 cents/kWh is maintained for all consumers in Peninsular, and a surcharge of 3.70 cents/kWh is maintained for commercial and industrial consumers. It is estimated that the government will spend around RM5.8bil.

The weightage of water supply and electricity is around 4.4% of overall consumer price index basket.

Cost-push factors have been factored in, including higher commodity prices and input prices due to external factors. We now think the risk is coming from higher private spending which would put pressure from the demand side.

Looking at spending indicators, credit card increased by 19.7%, debit card spending by 63.7%, loan growth picked up to 5.0%, and distributive trade increased by 10.0%.

We now expect BNM to increase the OPR by 50bps in the upcoming meeting in July, bringing the OPR to 2.50%.

We expect inflation to be between 2.8% - 3.0% for 2022. With first five months average at 2.4%, to achieve our target of 2.8%-3.0%, the next 7 months average should hover between 3.0% and 3.5% which is seen within our target. Last year’s average between June 2021 to December 2021 was 2.8%.

Source: AmInvest Research - 27 Jun 2022