Data Highlights

• In February 2024, Malaysia's overall price level remained relatively stable, with a slight increase of 0.3 percentage points compared to January's figures. The Consumer Price Index (CPI) indicated a YoY increase of 1.8%, surpassing consensus expectations and the previous month’s gain of 1.5%. Furthermore, core inflation, which excludes volatile items like fresh food and government-controlled goods, held steady at 1.8% YoY throughout the month.

• The index recorded 132.1 points, reflecting a 0.5% rise from the preceding month. Notably, inflation rate during the month marked the seventh occurrence of falling below Malaysia's average long-term inflation rate of 2.0%, as recorded from January 2010 to February 2024.

• For inflation at the state level, most of them recorded increases below the national inflation level of 1.8% YoY. However, five states that recorded increases above the national inflation level are Pulau Pinang (2.7% YoY), Pahang (2.4% YoY), Selangor (2.1% YoY), Perlis (2.0% YoY) and Sarawak (1.9% YoY).

• The breakdown reveals that only three components experienced accelerated annual growth during the month: Housing, Water, Electricity, Gas & Other Fuels, Transport, and Recreation Services & Culture. Remarkably, all three components collectively contributed significantly, accounting for 37.5% of the total CPI basket (refer to Figure 1).
   
  • Inflation for the Housing, Water, Electricity, Gas & Other Fuels increased by 2.7% YoY as compared to January 2024’s 2.0% YoY gain. This increase was driven by a higher increase in the subgroup of Water supply & miscellaneous services relating to the dwelling (29.7% YoY) as compared to January 2024 (9.3% YoY). The increase in the Water bills item to 28.8% as compared to 2.1% in January 2024 was due to a readjustment of water tariffs for the domestic category in Peninsular Malaysia and the Federal Territory of Labuan starting 1 February 2024, has contributed to the increase of this subgroup.
     
  • Transport segment recorded an increase of 1.2% YoY during the month (Jan24: 0.7% YoY). The increases were contributed by the main subgroup of public transport services which increased to 1.7% in February 2024 (Jan24: -4.5% YoY). Expenditure class of Fuels & lubricants for personal transport equipment increased to 0.3% YoY as compared to 0.4% YoY in January 2024 (0.4% YoY). This increase was in line with the rise in the average price of Unleaded Petrol RON97 (RM3.47 per litre) as compared to February 2023 (RM3.35 per litre).
     
  • Meanwhile, the Food & Beverages index saw a moderation of 1.9% YoY in February 2024, compared to the 2.0% annual growth recorded previously. This slight moderation can be attributed partly to price controls imposed on certain food products during the Chinese New Year (CNY) festivities, which were in effect from 6-14 February. Specifically, the "Food at Home" category increased by only 0.5% YoY, a slower rate compared to the 1.1% YoY growth previously recorded. In contrast, the growth in "Food away from Home" accelerated, reaching 3.5% YoY, up from 3.1% YoY previously.
     
  • Inflation for Furnishings, Household Equipment & Routine Household Maintenance recorded a slower increase to 0.9% in February 2024 (Jan 2024: 1.0% YoY). The increases were contributed by in the main subgroup of Goods & services for routine household maintenance (1.8% YoY) and Tools & equipment for house & garden (1.2% YoY). Among the items of Furnishings, Household Equipment & Routine Household Maintenance recorded increases were Softeners that included fabrics softener (8.6% YoY), Washing powder (4.4% YoY), Mosquito coil (3.9% YoY), Electric bulb (2.9% YoY) and Washing soap (2.6% YoY)

Our Thoughts

• 2M24, headline inflation averaged 1.6% YoY to 131.8 points and the key contributors to this trajectory were Restaurant & Accommodation Services (3.0% YoY), Personal Care, Social Protection & Miscellaneous Goods & Services (2.5% YoY), Furnishings, Household Equipment, & Maintenance (2.7% YoY), Housing, Water, Electricity, Gas & Other Fuels (2.8% YoY), and Food & Beverages (1.9% YoY).

• We expect the inflation rate for March 2024 to remain manageable, likely similar to February print (TA forecast: 1.9% YoY). This stability can be attributed to the stagnant growth in transportation costs. The price of RON97 has remained unchanged since October 2023 at RM3.47 per litre in March 2024, reflecting a YoY increase of 1.6%, mirroring the rate observed in the previous month. This consistent trend indicates a stagnant growth in the Transport Index.

• However, we are still anticipating a gradual uptick in the CPI going forward and we attribute this forecast to factors such as: 1) the expected hike in retail pump prices – possibly in the second half; 2) a potential upside bias in crude oil prices; 3) the build-up of demand-side pressure in tandem with improved growth prospects; and 4) the implementation of higher SST rate to 8.0% for selected items. Our projection closely aligns with the government's forecast, which ranges from 2.1% to 3.6%, with BNM expecting CPI to fall within the range of 2.0% to 3.5%. We project that the CPI will average at 2.9% (base case) throughout 2024, compared to 2.5% in 2023.

• The current inflation situation in Malaysia appears to be well-managed, and there seems to be no immediate pressure from the central bank to increase interest rates. The current rate stands at 3.00%, and we believed that the central bank is likely to maintain this stance.

Source: TA Research - 26 Mar 2024