Data Highlights

• Malaysia experienced a stable overall price level in April 2024, with a sustained increase of 1.8% YoY (Consensus, TA: 1.9% YoY), mirroring the growth rate of the previous month. MoM, it was up 0.2% (Mar24: 0.1% MoM). April's inflation rate marked the ninth instance of falling below the 2.0% long-term average (spanning from January 2010 to April 2024). 

• Meanwhile, core inflation rose slightly faster, increasing by 1.9% YoY during the month, compared to the previous 1.7% YoY increase. 

• At the state level, four states recorded increases above the national inflation level namely Pulau Pinang (3.2% YoY), Sarawak (2.8% YoY), Pahang (2.4% YoY) and Selangor (2.2% YoY). 

Details 

• Six components demonstrated accelerated annual growth, compared to five previously, namely, (1) Food & Beverages; (2) Furnishings, Household Equipment & Maintenance; (3) Health; (4) Recreation, Sport & Culture; (5) Restaurants & Accommodation Services; and (6) Personal Care, Social Protection & Miscellaneous Goods & Services. These groups contributed significantly, accounting for 49% of the total CPI basket (refer to Figure 1).
   
  • The Food & Beverages group, which accounts for 29.8% of the total CPI weight, recorded a 2.0% increase in April 2024, up from 1.7% in March 2024. Out of 247 food items, 156 items (63.2%) saw price increases compared to April 2023. Food at Home, which contributes 52.0% of the total Food & Beverages group weight, saw a marginal increase of 0.4%, up from 0.3% in March 2024. Meanwhile, the Food Away from Home subgroup recorded a higher increase of 4.0%, compared to 3.5% in the previous month.
     
  • Inflation for Furnishings, Household Equipment, and Routine Household Maintenance increased by 1.0% YoY in April 2024, compared to 0.9% YoY in March 2024. This increase was driven by the main subgroups: Goods & Services for Routine Household Maintenance (1.8% YoY) and Tools & Equipment for House & Garden (1.1% YoY)
     
  • Inflation for Restaurant & Accommodation Services increased by 3.5% YoY in April 2024, up from 3.0% YoY in March 2024. This rise was driven by the main subgroups: Beverage Preparation Services, which increased by 3.9% YoY (Mar24: 3.7% YoY), and Accommodation Services, which saw a significant increase by 2.4% YoY (Mar24: 0.6% YoY).
     
  • Meanwhile, the cost for the Transport index recorded a slower increase of 0.8% in April 2024, compared to 1.3% in March 2024. This slowdown was driven by the main subgroup, Operation of Personal Transport Equipment, which rose to 1.3% in April 2024 (Mar24: 1.4%). The expenditure class for Fuels & Lubricants for Personal Transport Equipment saw a 0.3% increase, maintaining the same rate as recorded in March 2024. Moreover, Public Transport Services Decreased Significantly to -2.9%, Down From 0.4% in March 2024.

Our Thoughts

• 4M24, headline inflation averaged 1.7% YoY to 132 points and the key contributors to this trajectory were Restaurant & Accommodation Services (3.2% YoY), Personal Care, Social Protection & Miscellaneous Goods & Services (2.5% YoY), Furnishings, Household Equipment, & Maintenance (2.6% YoY), Housing, Water, Electricity, Gas & Other Fuels (2.7% YoY), and Health (2.3% YoY) and Food & Beverages (1.9% YoY). 

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

• Regarding fuel subsidy rationalisation, the timing of future hike in diesel prices remains elusive at the time of writing. We believe this potential increase could put pressure on the current inflation rate. Additionally, we would like to highlight that the CPI could increase by more than two percent if the diesel subsidy removal is implemented soon. Our inflation rate projection closely aligns with the government's forecast, ranging from 2.1% to 3.6%, with the Bank Negara Malaysia expecting the CPI to fall within the range of 2.0% to 3.5%. At present, we anticipate the CPI to average at 2.9% (base case) throughout 2024, compared to 2.5% in 2023. We will refine our forecast once we have details on the fuel subsidy rationalisation. 

• Consequently, we anticipate a gradual uptick in the CPI moving forward, most likely in the second half of the year. Other factors contributing to this forecast include the build-up of demand-side pressure in conjunction with improved growth prospects. The Malaysian economy surpassed expectations in the first quarter, with a growth of 4.2%. We anticipate this momentum to persist into the next quarter, projecting a growth rate of 5.5% for the second quarter. 

• 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 - 27 May 2024