Data Highlights

• Malaysia experienced a relatively stable overall price level in March 2024, with a sustained increase of 1.8% YoY (consensus: 2.0% YoY; TA: 1.9% YoY), mirroring the growth rate of the previous month. The Consumer Price Index (CPI) reached 132.2 points, showing a marginal 0.1% rise from the previous month. Additionally, core inflation, which excludes volatile items like fresh food and government-controlled goods, rose by 1.7% YoY during the month, compared to a 1.8% YoY increase previously. March's inflation rate marked the eighth instance of falling below the 2.0% long-term average (spanning from January 2010 to March 2024).

• At the state level, five states recorded increases above the national inflation level namely Pulau Pinang (3.0% YoY), Sarawak (2.9% YoY), Pahang (2.1% YoY), Selangor (2.1% YoY) and Perlis (1.9% YoY).
   
• The breakdown revealed that only five components experienced accelerated annual growth during the month: Alcoholic Beverages & Tobacco; Housing, Water, Electricity, Gas & Other Fuels; Transport; Restaurants & Accommodation Services; and Personal Care, Social Protection & Miscellaneous Goods & Services. These groups contributed significantly, accounting for 45.6% of the total CPI basket (refer to Figure 1).
   
  • Inflation for the Housing, Water, Electricity, Gas & Other Fuels segment continued to record an increase to 3.0% YoY as compared to 2.7% YoY in February 2024. This increase was driven by a higher increase in the subgroup of water supply & miscellaneous services relating to the dwelling (31.6% YoY) as compared to February 2024 (29.7% YoY). Expenditure class of water supply continued to increase 31.4% YoY as against 28.8% in February 2024. Kedah has increased the water tariff rates for domestic category users starting in March 2024 as compared to other states that have implemented the new tariff rates in February 2024
     
  • During the month, the Transport segment saw a YoY increase of 1.3% (Feb24: 1.2% YoY). This rise was primarily driven by the operation of personal transport equipment subgroup, which increased by 1.4% YoY. Within this subgroup, expenditure on fuels and lubricants for personal transport equipment also increased by 0.3% YoY, matching the rate recorded in February 2024. This uptick correlates with the average price hike of Unleaded Petrol RON97, which stood at RM3.47 per litre in March 2024, compared to RM3.35 per litre in March 2023.
     
  • Meanwhile, the Food & Beverages index exhibited a moderated growth of 1.7% YoY in March 2024, compared to the 1.9% annual growth previously recorded. This subdued expansion can partly be attributed to the high base effect, as the growth of food components surged significantly in most months of 2023. According to the Department of Statistics Malaysia (DOSM), out of 247 food items, 149 items (60.3%) witnessed price increases compared to March 2023. Specifically, the "food at home" category saw a modest increase of only 0.3% YoY, a slower rate compared to the 0.5% YoY growth previously recorded. In contrast, the growth in food away from home maintained its momentum, growing at 3.5% YoY, the same rate observed in February 2024.
     
  • Inflation for Restaurants & Accommodation Services increased at 3.0% YoY in March 2024 as against 2.9% in February 2024. This was contributed by the increase in the main subgroup of beverage preparation services, 3.7% YoY (Feb24: 3.4% YoY) and the main subgroup of accommodation services, 0.6% YoY (Feb24: 1.0% YoY)​​​​​​​

Our Thoughts

• 1Q24, headline inflation averaged 1.7% YoY to 131.9 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 (2.6% YoY), and Health (2.3% YoY) and Food & Beverages (1.9% YoY).

• We expect the inflation rate for April 2024 to remain manageable, likely similar to February / March 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.

• We anticipate a gradual uptick in the CPI moving forward, with several factors contributing to this forecast: the expected hike in retail pump prices, possibly in the second half of the year; potential upside bias in crude oil prices; and the build-up of demand-side pressure in conjunction with improved growth prospects. Our projection closely aligns with the government's forecast, which ranges from 2.1% to 3.6%, with the Central Bank (BNM) expecting the CPI to fall within the range of 2.0% to 3.5%. We anticipate that the CPI will average at 2.9% (base case) throughout 2024, compared to 2.5% in 2023.

• We may refine our forecast once we have details on the subsidy rationalisation. According to Economy Minister Rafizi Ramli, the government will initiate communications on the methods and standards for subsidy rationalisation, as well as clarify the effects on various segments of society in the coming weeks. Rafizi mentioned that with 52.6% of Malaysians aged 18 and above registered with the Central Database Hub (PADU), there is sufficient bandwidth to finally implement subsidy rationalisation and transition away from the regressive model of blanket subsidies.

• 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 believe that the central bank is likely to maintain it.

Source: TA Research - 26 Apr 2024