Data Highlights

• Prices increased more slowly in July 2023, with the Consumer Price Index (CPI) increased by 2.0% YoY (130.5 points). This rise was slower than the previous month, which saw a 2.4% increase (Consensus expectation: 2.1% YoY). This is the slowest increase since March 2021.

• The moderation in CPI can be attributed primarily to the decelerated growth observed in most of the sectors, especially the food-related segments. Additionally, the cost of transportation and communication also went down, contributing to the moderation.

• Looking at the monthly perspective, the headline inflation experienced a modest increase of 0.1% MoM, rising from June 2023's value of 130.4 points.

• July's inflation was the first time it dropped below Malaysia's average long-term inflation rate of 2.1% (between January 2010 and July 2023)

• The growth of core-CPI (excluding volatile items of fresh food and goods controlled by the government) eased to 2.8% YoY during the month, 0.3-percentage point less than Jun’s figure. At the same time, CPI without fuel also moderated by 2.5% YoY during the month, compared with 2.8% annual gain in the prior month. This segment covers all goods and services except Unleaded Petrol RON95, Unleaded Petrol RON97, and Diesel.

• All states registered increases in inflation, with seven states showing increases above the national inflation level of 2.4%. The highest increase was recorded at WP Putrajaya (2.6% YoY), Sarawak (2.6% YoY), and Pahang (2.6% YoY). Meanwhile, WP Labuan (1.1% YoY), Kelantan (1.4% YoY) and Kedah (1.5% YoY) were among the states with the lowest CPI increase during the month.
• Breakdown showed eight out of the 12 CPI baskets (total weightage: 86.9%) posted moderate annual growth, while the other four segments registered a sustainable growth (Refer Figure 3). 
  o The Food & Non-Alcoholic Beverages index moderated by 4.4% YoY (0.4% MoM) in July 2023, compared 4.7% annual growth previously. The "Food at Home" increased by only 3.0% YoY, slower than 3.2% YoY registered previously. Meantime. “Food away from Home” growth sustained at 6.3%, the same gain seen previously. 
  o Other food-related segment such as Restaurants & Hotels also posted moderate growth of 5.0% YoY from 5.4% YoY previously. 
  o Transportation cost declined by 0.4% due to the lower cost in the subgroup of Operation of Personal Transport Equipment (Jul23: -0.8% YoY: Jun23: -0.6% YoY) underpinned by the contraction seen in fuels & lubricants for personal transport equipment (-3.7% YoY). (Average RON97: -29.4% YoY) 
  o Inflation for Furnishings, Household Equipment & Routine Household Maintenance moderated by 1.9 % YoY in July 2023 with all subgroups registered moderate increases. 
  o Meantime, the sub segments that showed a sustain reading during the month were Clothing & Footwear, Health, Education, and Miscellaneous Goods & Services.
• 7M23, headline inflation averaged at 3.0% YoY and the key contributors to this trajectory were Restaurants & Hotels (6.4% YoY), Food & Non-Alcoholic Beverages (6.0% YoY), Furnishings, Household Equipment, & Maintenance (2.8% YoY), and Miscellaneous Goods & Services (2.5% YoY).
• Notwithstanding the persistence of Core-CPI, the performance thus far is promising, revealing a YTD growth of 3.5% YoY in 7M23, which moderated from this year’s high of 4.2% YoY (Nov23). This sustains our firm conviction that there shall be no further interest rate hikes within this year. We keep the average inflation rate for 2023 at 3.0%.

Source: TA Research - 28 Aug 2023