Economic Highlights

• Malaysia’s June consumer price index (CPI) grew 3.4% y/y, faster than May’s growth level of 2.8% and market expectation of 3.1%.

• Core inflation rose 3.0% y/y, the steepest pace since 2017 and faster than 2.4% in May.

Highlights

Malaysia’s June consumer price index (CPI) grew 3.4% y/y, faster than May’s growth level of 2.8% and market expectation of 3.1%. In fact, it marked the fastest inflation rate since June 2021 when it was also around 3.4% y/y. On a monthly basis, headline inflation advanced 0.6% m/m, around the same pace as the previous month’s 0.56% m/m.

Excluding volatile fresh food and controlled price items, core inflation climbed 3.0% y/y, the steepest pace since 2017 and faster than the 2.4% in May. Also, inflation without fuel, accelerated 3.2% y/y, up from 2.7% y/y in May.

The higher pace of headline inflation was mainly driven by the food & non-alcoholic beverages component which grew by 6.1% y/y, (May: 5.2% y/y). Looking at its sub-components, food at home rose 6.1% y/y (May: 5.5%), while food away from home index climbed 6.6% (May: 5.1%).

This is followed by the upsurge in the transport component at 5.4% y/y (May: 3.9% y/y), and restaurants & hotels with 5.0% y/y (May: 3.7% y/y), marking the fastest pace in eight years.

Notably, the inflation rate for those with income below RM3,000 rose 3.4% y/y, up from 2.9% y/y in May 2022, contributed by higher food prices (6.2%) which comprised meat (12.0%), milk, cheese & eggs (8.4%) and vegetables (7.6%).

Key Takeaways

This higher June’s headline inflation brings the average for the period of Jan–June 2022 up to 2.5%, gaining ground to reach our target of 2.8% with an upside surprise of 3.3%.

The upward pressure on inflation continued to be driven by the higher food prices, reflecting the spike in global commodity prices. As a net food importer, any shocks affecting global food prices will directly impact local prices as well. During the same month, the Food Price Index by the Food & Agriculture Organization (FAO) of the United Nations surged 23.1% y/y.

The weakening ringgit may also push up other importation costs and impacting other components as well. For June 2022, imports jumped by 49.3% y/y while the ringgit, on average, was 6.4% weaker compared to June 2021 (RM4.13/US$1 vs. RM4.40/US$1).

Moving forward, the consumer price level will continue to be contained by the price ceiling imposed on some items and recession worries induced by rising global interest rates. Nevertheless, we are seeing a stronger pressure on the upside for the upcoming months.

In particular, we may see low base effects for the next three months (July, Aug, Sep) as the local economy suffered the reintroduction of MCO 3.0 in 2021.

Also, starting 1 July 2022, the government imposed a new retail price ceiling for standard chicken at RM9.40/kg, slightly higher than the previous ceiling of RM8.90/kg. Eggs’ price ceiling was also set at 2 sen higher compared to the previous level.

Having said that, we maintain our inflation projection for the full year at 2.8%–3.0%, but with a possibility of it reaching an upside of 3.3%. On the monetary front, we expect BNM to increase the OPR by 25bps during both its September and November meetings as the central bank continues to be cautious in rolling back its accommodative policy.

Source: AmInvest Research - 25 Jul 2022