• CPI jumped by 4.7% YoY in August, the highest for the year  Core inflation surged or to 3.8%, pushing YTD average to 2.5%.

• Combination of drivers may push the CPI to expand by +3.7% YoY in 2022 before mean reverting to 3.3% in 2023

OVERVIEW

The Consumer Price Index (CPI) surged to year high in August though it could have been much higher if not for price controls for selected goods especially petrol and food. CPI that jumped by 4.7% YoY in August, the peak for the year, was also pushed by base effect following tepid inflation last year (August 2021: +2.0%). Note that CPI could have been much higher if not for the cap in pump prices given protracted rally in global oil prices and drop in the Ringgit. CPI was also pressurized by base effect following the 10% discount for electricity tariff last year following the COVID-19 stimulus packages (note: PEMERKASA). On a month-on-month (MoM) basis, CPI that increased by 0.2% is a moderation against July numbers (+0.4%).

As mentioned, CPI for the month was lifted by the rally in global oil prices though it could have surged much higher if not for the cap in pump prices (RON95 petrol and diesel). Oil price, using Brent crude as a benchmark, jumped by +32.9% YoY in August (July: +44.1%), to reach USD96.49 per barrel (average), the second lowest for the year nonetheless. The increase in pump prices (i.e., RON97) was further pushed by the drop in Ringgit (August 2022: -7.7% YoY) which has put additional pressure on oil prices per barrel in Ringgit terms (Brent crude August 2022: RM431.93 per barrel; +42.4% YoY). This aided the surge in pump prices - the transport-sub-index’s seventeen straight months of expansion (August transport sub-component: +5.2% YoY).

The biggest component in CPI, food and beverages (non-alcoholic) – F&B (29.5% share), also jumped, the sharpest by all components, to +7.2% YoY (July: +6.9%), the highest in many months, no thanks to supply disruptions and second round effect of price pressure consistent with domestic demand that continued to recover. This could have been much higher however if not for the intervention to abolish the Approved Permit (AP) for food imports by the government.

Core inflation also rebounded, consistent with the jump in the F&B sub-component, reflected by a +3.8% YoY increase in August (July: +3.4%). This is in tandem with inflation without fuel which also expanded though with sharper increase vis-à-vis core inflation (+4.6%; July: +4.2%). The inflationary environment in August was primarily driven by a turnaround in general prices led by F&B (August: +7.2%) and restaurant and hotels (August: +6.4%) sub-indexes

Urban CPI was ahead of rural yet again, reflected by an increase of 4.8% vs. 3.6% with both equally lifted by the turnaround in the F&B sub-component (August urban: +7.6%; rural: 5.2%). CPI for the income group below RM3,000 (August: 4.5% YoY) was slightly below the national average (August: +4.7%) driven by the F&B (August: +7.0%) and restaurant and hotels (August: +6.8%) sub-indexes. Three (3) states registered CPI that was higher than the national average, led by Wilayah Persekutuan Putrajaya (8.5%), Selangor (5.5%) and Johor (4.9%) pushed by higher F&B cost (W.P. Putrajaya F&B sub-index: +8.7%; Selangor: +9.1%; Johor: +7.8%).

On a monthly basis, CPI that moderated to 0.2% (August: +0.4%) was underpinned by restaurant and hotels (August: +0.6%) and housing, water, electricity, gas and other fuel (August: +0.4%) sub-indexes, signaling the building-up of demand-driven pressure, a concern that could last well into the fourth quarter if not in early part of 2023 consistent with improvement in Malaysia labour market (August 2022 unemployment: 3.70%). Core index, which excludes volatile items like transport and F&B, was higher by 3.8% in August (July: +3.4%) with F&B (August: +7.3%) and transport (August: +6.7%) sub-indexes emerging as the primary drivers for the index. Eleven (11) out of twelve (12) sub-components registered gains for the month led by F&B (August: +7.2%) and restaurant and hotels (August: +6.4%) sub-indexes.

It was a steady moderation for the transport sub-index (August: +5.2%; July: +5.6%) thanks price control measures for RON95 and Diesel which could have remained elevated given the protracted rally in global oil prices (Brent crude April 2022: RM431.93 per barrel; +42.4% YoY). Note that the prices for RON95 petrol and Diesel have been kept at its ceiling since February last year and this is set to remain though there have been urges for the government to refloat the petrol prices given the huge burden on the government’s finances (petrol subsidy 2022 – estimated: RM30bn; 2021: RM11bn; +172.7% YoY).

Source: BIMB Securities Research - 23 Sept 2022