Data Highlights

• Malaysia's overall price level continued to moderate in November 2023, marking the smallest YoY increase since February 2021, with a rise of just 1.5%. The index stood at 130.9 points unchanged from the previous month reading, and fell below the consensus forecast of 1.7% 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 November last year. November's inflation rate also marked the fourth time it fell below Malaysia's average long-term inflation rate of 2.0% that was recorded between January 2010 and November 2023.

• The core-CPI, which excludes volatile items such as fresh food and government-controlled goods, increased by 2.0% YoY during the month, compared with 2.4% YoY recorded in the prior month. Simultaneously, CPI without fuel moderated, registering a 1.7% YoY increase during the month, compared to a 2.1% annual gain in the previous month. This segment encompasses all goods and services except Unleaded Petrol RON95, Unleaded Petrol RON97, and Diesel.

• Most states reported inflation rates below the national average of 1.5% with the lowest inflation rate was recorded at 4 states including Kelantan, Negeri Sembilan, Terengganu and WP Kuala Lumpur, increasing by only 0.9% YoY. Meanwhile, WP Putrajaya (2.3% YoY), Sarawak (2.0% YoY), and Perak (1.9% 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: 40.4%) posted moderate annual growth (See Figure 1):
  o The Food & Non-Alcoholic Beverages index moderated by 2.6% YoY (-0.3% MoM) in November 2023, compared 3.6% annual growth previously. The "Food at Home" increased by only 1.4% YoY, slower than 2.1% YoY registered previously. Meantime, “Food away from Home” growth recorded a moderate growth of 3.9% YoY, from 5.6% YoY previously.
  o No further upside for transportation cost as it unchanged due to the lower cost in the subgroup of Fuels & lubricants for personal transport equipment at -1.3% YoY. This resulting to moderate gain Operation of personal transport equipment at 0.2% YoY. Meantime, Transport services cost declined by 1.4% YoY underpinned by lower cost of Passenger transport by air (-3.7% YoY). The average price of Unleaded petrol RON97 recorded a decline to negative 12.2% in November 2023 (RM3.47 per litre) as compared to November 2022 (RM3.95 per litre), in line with the decrease in the price of Brent crude oil (-8.7%) to US$83.18 per barrel in November 2023.
  o The growth for Furnishings, Household Equipment & Routine Household Maintenance sustained at 1.4% YoY in November 2023. The subgroup of Goods & services for routine household maintenance was the main contributor to the increase of this group, which increased 3.0% YoY.
  o Inflation for Restaurants & Hotels increased to 4.3% YoY in November 2023, slower from 4.6% YoY gain registered in October 2023, contributed by the increase in the subgroup of Expenditure in restaurants & cafés, 4.3% (October 2023: 4.5%) and the subgroup of Accommodation services, 4.2% (October 2023: 5.1%)
  o Inflation of Housing, Water, Electricity, Gas & Other Fuels group increased 1.7% in November 2023 as compared to the same month of the previous year. The increase was attributed by the subgroup of Water supply & miscellaneous services relating to the dwelling (2.5%), Actual rental for housing (1.9%) and Maintenance & repair of dwelling (0.7%).

Our Thoughts

• 11M23, headline inflation averaged at 2.5% YoY and the key contributors to this trajectory were Restaurants & Hotels (5.8% YoY), Food & Non-Alcoholic Beverages (5.0% YoY), Furnishings, Household Equipment, & Maintenance (2.4% YoY), and Miscellaneous Goods & Services (2.4% YoY).

• The government’s recent announcements, including the festive season maximum price scheme and toll waiver, are expected to alleviate inflationary pressures in December. The Domestic Trade and Cost of Living Ministry will implement a nationwide festive season maximum price scheme for Christmas, running from December 23 to 27. Minister Datuk Armizan Mohd Ali highlighted that this scheme will cover 14 controlled items and will be enforced through the Price Control and Anti-Profiteering Act (Akhap) 2011. Simultaneously, the government has approved toll charges waiver on December 23 and 26 for users of all vehicle categories, in celebration of Christmas.

• Additionally, we anticipate a gradual uptick in inflation for the upcoming year, with our current assessment suggesting a faster increase compared to the present year. Our base case inflation rate in 2024 stands at 3.1% (compared to 2.7% in 2023). This forecast takes into consideration 1) persistence increase in food inflation amid the lagged impact of El Niño conditions; 2) upside bias in crude oil prices; and 3) the build-up of demand-side pressure in tandem with improved growth prospects. Notably, our projection aligns closely with the forecasts outlined by the government of 2.1% to 3.6%.

Source: TA Research - 26 Dec 2023