Data Highlights

• Malaysia's overall price level continued to moderate in October 2023, marking the smallest YoY increase since April 2021, with a rise of just 1.8%. The index stood at 130.9 points and fell below the consensus forecast of 1.9% 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 4.0% in October 2022. On a monthly basis, inflation rose by 0.1%, the same gain as in the previous month. October's inflation rate also marked the third time it fell below Malaysia's average long-term inflation rate of 2.1%, which was recorded between January 2010 and October 2023. 

• The core CPI, which excludes volatile items such as fresh food and government-controlled goods, increased by 2.4% YoY during the month, compared with 2.5% YoY recorded in the prior month. Simultaneously, CPI without fuel moderated, registering a 2.1% YoY increase during the month, compared to a 2.3% annual gain in the previous month. This segment encompasses all goods and services except Unleaded Petrol RON95, Unleaded Petrol RON97, and Diesel. 

• Eleven states reported inflation rates below the national average of 1.8%. The lowest inflation rate was recorded at 1.3% YoY for Kedah, Kelantan and Negeri Sembilan. Meanwhile, WP Putrajaya (2.7% YoY), Perlis (2.6% YoY), and Sarawak (2.5% YoY) were among the states with the highest increases in the CPI during the month. 

• Breakdown showed 5 out of the 12 CPI baskets (total weightage: 45.9%) posted moderate annual growth, while the other segments registered a sustained or muted growth.
  
  o The Food & Non-Alcoholic Beverages index moderated by 3.6% YoY (0.1% MoM) in October 2023, compared to 3.9% annual growth previously. The "Food at Home" increased by only 2.1% YoY, slower than the 2.5% YoY registered previously. Meanwhile, “Food away from Home” growth recorded a moderate growth of 5.6% YoY.
  
  o No further upside for transportation cost as it is unchanged due to the lower cost in the subgroup of Fuels & lubricants for personal transport equipment at -1.4% YoY. This resulted in a moderate gain in the Operation of personal transport equipment at 0.2% YoY. Meantime, Transport services cost declined by 5.2% YoY underpinned by lower cost of Passenger transport by air (-11.6% YoY)
  
  o Inflation for Furnishings, Household Equipment & Routine Household Maintenance moderated by 1.4% YoY in October 2023, with furniture & furnishing, carpets & other floor covering subgroup moderated by 0.2% YoY during the month (Sept23: 0.3% YoY)
  
  o Meantime, the sub-segments that showed a sustained reading during the month were Health, Recreation Services & Culture, Education and Restaurants & Hotels (Refer to Figure 1) 

Our Thoughts 

• 10M23, headline inflation averaged at 2.8% YoY and the key contributors to this trajectory were Restaurants & Hotels (5.8% YoY), Food & Non-Alcoholic Beverages (5.3% YoY), Furnishings, Household Equipment, & Maintenance (2.5% YoY), and Miscellaneous Goods & Services (2.4% YoY). With only two months remaining in the current year, we now anticipate that there is no significant upside pressure on inflation. Previously, we noted the possibility of the headline CPI surpassing 2% in the final quarter due to factors such as the diminishing impact of the base effect, rising oil prices, and potential ripple effects from an increase in imported rice prices. However, these expectations did not materialise in October. Consequently, we believe the full-year projection may fall below our initial expectation of 3.0% for 2023, likely settling around 2.7%. 

• In our current assessment for the upcoming year, we are maintaining our projection for the base case inflation rate in 2024 at 3.1%. This forecast takes into consideration 1) the effect of widening the Service Tax bracket on top of the additional 2% rate from 6% to 8% as announced during Budget 2024, and 2) subsidy rationalisation to commence in the second half of the year. Notably, our projection aligns closely with the forecasts outlined by the government, which range from 2.1% to 3.6%. More comprehensive details regarding this forecast will be shared in the forthcoming Annual Strategy 2024 report.

Source: TA Research - 27 Nov 2023