Background Summary

CPI came in at 1.8% in October – Inflation rate declined to 1.8%, and core inflation also declined to 2.4%

The price increase in food items was modest - The component of food at home experienced a 2.1% increase, a slight decrease from the 2.5% recorded in the previous month.

Our take

Inflation expectation – Inflation in 2024 is expected to fall within a range of 2.5% to 3.5%, considering the effects of subsidy rationalisation and the impact of the services tax increase. However, there is an upside risk to this outlook if the scope of rationalisation extends to RON95 fuel.

Growth view for 2024 – Our economic growth forecast for Malaysia remains at 4.0% for 2023 and is expected to pick up to 4.5% in 2024. The weak export sector is anticipated to recover in 2024 due to easing inflationary pressures in major economies. On the domestic front, measures announced in Budget 2024, particularly those aimed at boosting consumption, are anticipated to support economic growth. However, the impending subsidy rationalisation, which includes food and fuel later in 2024, may lead to changes in consumer spending priorities.

Headline inflation declined to 1.8% in October

The Consumer Price Index (CPI) declined to 1.8% y/y in October 2023 (September 2023: 1.9%), bringing the year-to-date inflation to 2.7% (2022: 3.4%). Core inflation, which excludes volatile items and controlled prices, also declined to 2.4% y/y (September 2023: 2.5%). On a year-to-date basis, core inflation stood at 3.2% (2022: 3.0%).

The rise in inflation was primarily influenced by lower increases in food & nonalcoholic beverages at 3.6%. Additionally, there were increases in furnishings, household equipment & routine household maintenance at 1.4% and miscellaneous goods & services at 2.3%.

The component of food at home saw a 2.1% increase, down from 2.5% in the previous month. This was primarily driven by the rice, bread & other cereals subgroup, which increased by 3.6% (compared to 4.1% in September 2023). The subgroups of milk, cheese & eggs and meat increased by 3.1% and 2.1%, respectively. Additionally, the component of food away from home increased at a slower rate, reaching 5.6%, compared to 5.9% in September 2023.

Our take on CPI

With the slower pressure from the demand-pull inflation and impact from the interest rates normalisation, inflation will continue to remain modest for the remainder of 2023 and in the early part of 2024. For 2023, we expect inflation to be at a range of 2.5% - 3.0%.

Based on the government’s forecast, inflation is expected to be between 2.1% - 3.6% in 2024. The wide range reflects the gradual shift towards targeted subsidy mechanism, which is expected to be realised in 2024. Overall, we expect inflation in 2024 to be at between 2.5% - 3.5%, accounting to the effect from the subsidy rationalisation, and the impact of the services tax increase. However, the risk on our inflation outlook tilts to the upside if the scope of the rationalisation extends to RON95. As guided, the implementation is depending on the progress of the National Utility database (Pangkalan Data Utiliti Kebangsaan or PADU), and the database is likely to be completed in the 1Q2024.

Source: AmInvest Research - 27 Nov 2023