Data Highlights

• In September 2023, Malaysia's overall price level continued to moderate, marking the smallest YoY increase since March 2021, with a rise of just 1.9%. The index stood at 130.8 points, and fell below the consensus forecast of 2.1% YoY. 

• Part of the moderation in inflation can be attributed to the high base effect, as the Consumer Price Index (CPI) saw an increase of 4.5% in September 2022. On a monthly basis, inflation rose by 0.1%, compared to a 0.2% increase in the previous month. 

• September's inflation rate also marked the second time it fell below Malaysia's average long-term inflation rate of 2.1% that was recorded between January 2010 and September 2023. 

• The core-CPI, which excludes volatile items such as fresh food and government-controlled goods, increased by 2.5% YoY during the month, the same rate as in the prior month. Simultaneously, CPI without fuel moderated, registering a 2.3% YoY increase during the month, compared to a 2.4% annual gain in the previous month. This segment encompasses all goods and services except Unleaded Petrol RON95, Unleaded Petrol RON97, and Diesel. 

• Ten states reported inflation rates below the national average of 1.9%. The lowest inflation rate was recorded at 1.3% YoY for Kelantan and Negeri Sembilan, while inflation in Kedah was at 1.5%. Meanwhile, Sarawak (2.7% YoY), WP Putrajaya (2.6% YoY), and Perak (2.3% YoY) were among the states with the highest increases in the CPI during the month. 

• Breakdown showed 8 out of the 12 CPI baskets (total weightage: 82.9%) posted moderate annual growth, while the other segments registered a sustained growth. 
  
  o The Food & Non-Alcoholic Beverages index moderated by 3.9% YoY (0.1% MoM) in September 2023, compared 4.1% annual growth previously. The "Food at Home" increased by only 2.5% YoY, slower than 2.9% YoY registered previously. Meantime, “Food away from Home” growth recorded a sustained growth of 5.9% YoY.
  
  o Other food-related segment such as Restaurants & Hotels also posted a moderate growth of 4.4% YoY from 4.7% YoY previously – underpinned by a lower increase in the subgroup of expenditure in Accommodation services at 4.7% YoY or -0.3% MoM.
  
  o Transportation cost contracted slightly by 0.1% YoY due to the lower cost in the subgroup of Operation of Personal Transport Equipment (Sept23: -0.1% YoY; Aug23: -0.3% YoY) and lower cost of transport services (Sept23: --1.4% YoY; Aug23: 3.5% YoY) due to the decline observed for Passenger transport by railway (-0.6% YoY) and air (-3.8% YoY)
  
  o Inflation for Furnishings, Household Equipment & Routine Household Maintenance moderated by 1.5 % YoY in September 2023 with furniture & furnishing, carpets & other floor covering subgroup moderated by 0.3% YoY (Aug23: 0.4% YoY)
  
  o Meantime, the sub segments that showed a sustain reading during the month were alcoholic beverages & tobacco, clothing & footwear, and miscellaneous goods & services (Refer Figure 1)

• 9M23, headline inflation averaged at 2.8% YoY and the key contributors to this trajectory were Restaurants & Hotels (6.0% YoY), Food & Non-Alcoholic Beverages (5.5% YoY), Furnishings, Household Equipment, & Maintenance (2.6% YoY), and Miscellaneous Goods & Services (2.5% YoY).

• Although inflation has been relatively moderate thus far, there is a potential for an increase in inflation during the final quarter of this year, possibly surpassing the 2.0% mark once again. This is due to several factors such as (1) The diminishing impact of the base effect as headline inflation moderated to 3.9% in 4Q22 versus a surge of 4.5% YoY in 3Q22; (2) Brent crude oil prices have surged recently and are currently trading above $90 per barrel. This increase in oil prices could contribute to overall inflationary pressures, particularly the transport index.; (3) The Malaysian Ringgit has been persistently weakening, fluctuating between RM4.70 and RM4.80 per USD. It could drive up the cost of imported goods, further adding to inflation; and (4) Potential ripple effect from an increase in imported rice prices, which could have a cascading effect on food costs.

• As per our current evaluation, we are retaining our projection for the average inflation rate in 2023 at 3.0%. This aligns with the forecasts presented by both the government and the central bank, which ranged from 2.8% to 3.8%.

Source: TA Research - 23 Oct 2023