• Both Consumer Sentiment Index and Business Condition Index Slipped

• Composite Sentiment was hit by various headwinds

• Private consumption may pull back

• Uninspiring condition may persist throughout the year

• Inflationary risk a bane

Overview

The Consumer Sentiment Index (CSI) slipped below the 100-neutral level in 2Q, completely erased the gains in 1Q, as sentiment was dented by concerns over employment and inflationary environment. CSI dropped by 23.0-points as a result to end the quarter at 85.9 points, better than a year ago (2Q21: 64.3) though a disappointment against the previous period (1Q22: 108.9). The unemployment rate which remained on the downtrend (June: 3.8%; May: 3.9%) failed to boost confidence no thanks to inflation which reached a multi year high in June (3.4%) which shows little sign of slowing down. Various news flow which suggests the step towards subsidy rationalization also hurt confidence, pushing the index to slip to a new low since 2Q21 (64.3). Subsidy rationalization for essential goods such at petrol has been a hotly debated topic which gave rise to the call towards rationalization especially when fiscal subsidy may reach a new record in 2022 (RM80bn), a major concern given that it is higher than the allocation for Development Expenditure (2022: RM75.6bn). As this is not sustainable, the government has mooted several mechanisms to keep the tab low especially for petrol subsidy amid a large plea for subsidy to be more targeted and differentiated for the deserving few, namely the B40 and M40 only. The resultant impact via the eventual floating of petrol price may put additional pressure to inflation and this is a concern given that we are about to recover from the headwinds of COVID-19.

Sentiment may remain uninspiring in the near term given various tail risks including the second-round price effect from a rise in inflation, elevated level of global commodity prices, Russia transgression into Ukraine, China’s strict COVID-19 lockdown policies and persistent global supply chain disruption. This may push consumers to be cautious and therefore, the consumption activity in the near term.

Source: BIMB Securities Research - 11 Aug 2022