Data Highlights

• Malaysia's Distributive Trade Index (DTI) rose by 4.5% YoY to 154 points in April 2024, outperforming the 2.4% YoY gain observed in March 2024. This positive momentum can be attributed to the festive spending associated with Hari Raya and the ongoing resurgence in economic activities, supported by an improved labour market throughout the month. However, on a month-on-month basis, there was a slight decline of 0.7%, compared to a 2.6% MoM increase in March 2024. Simultaneously, Malaysia's Distributive Trade Sales saw a commendable 6.6% YoY expansion, reaching RM144.9bn, up from a 5.2% YoY growth in March 2024.

• The upswing in Malaysia's DTI was notably buoyed by gains across all key segments, including Retail Trade, Motor Vehicles, and Wholesale Trade.
  
  - The Volume Index for Wholesale Trade, holding the largest share of the total distributive trade, registered a 2.7% YoY increase to138.7 points. It marked an improvement from the 2.2% YoY gain recorded in the previous month.
  
  - Similarly, Motor Vehicles experienced a surge, with a noteworthy 17.1% YoY increase, reaching 131.8 points. This outperformed the marginal 0.7% gain observed in the previous month, underscoring a pronounced upward trend in this particular sector.
  
  - In addition, Retail Trade witnessed a 3.5% YoY growth, reaching 173.5 points. However, this gain was less than the 5.4% YoY increase observed in March 2024. Specifically, there was a noticeable shift in consumer behaviour during the month, with people preferring to shop at "stalls and markets" rather than "non-specialised stores" and "specialised stores." Retail Sales Via Stalls and Markets sub-segment rose by 3.1% YoY (Mar24: 2.7% YoY), while retail sales in non-specialised stores and specialised stores moderated by 3.2% and 2.8% YoY, respectively (previously more than 6%). This trend is understandable, as the month of Ramadan saw numerous bazaars opening, providing ample shopping opportunities at stalls and markets.
   
• During the initial four months, the DTI increased by an average of 3.9% YoY. Analysing this trend, the three-month moving average of the index exhibited a 4.0% YoY expansion in April 2024, indicating a slight uptick from the previous reading of 3.7% YoY. This year, we believe that consumer spending is set to maintain its resilience, driven by several key factors. The ongoing improvement in the labour market stands out as a pivotal contributor, with the anticipated jobless rate expected to settle at 3.2% by the end of 2024. This positive trend is further supported by an anticipated growth in employment, solidifying the foundation for robust consumer confidence.
   
• Furthermore, a crucial factor bolstering consumer spending resilience lies in the stability and consistency of income. We anticipate that the continued rise in salaries and wages in Malaysia will further support spending habits. According to data from the statistics department, the median monthly salary for those in the formal sector increased by 4.9% YoY to RM2,900 in December 2023 (compared to RM2,600 in November 2023), and we anticipate this positive trajectory to persist. For this year, we expect personal spending in real GDP to expand by 6.2%, an increase from 4.7% in 2023.

• Nevertheless, we have assessed the risks to consumer spending patterns, particularly considering the potential resurgence in headline inflation in the second half of this year. As previously announced, the price of diesel is now based on market prices and is being sold at RM3.35 per litre, a significant increase from RM2.15 per litre previously. Additionally, we anticipate the possibility of fuel subsidy rationalisation for RON95, likely to occur in the latter part of this year. Consequently, we may witness a rise in prices in related sectors such as food and transportation costs. This would inevitably impact the disposable income of individuals, prompting potential changes in spending patterns, which could in turn hinder GDP performance this year.

• We observed that the correlation between retail sales and inflation for the period 2019-2023 stands at a significant 74%. This high correlation indicates a strong relationship where increases in retail sales are often associated with rising inflation. Wholesale sales also show a strong correlation with inflation at 72.9%. Meanwhile, the correlation between motor vehicle sales and inflation is notably lower at 31.9%. This weaker correlation suggests that while there is some relationship, it is less direct and influenced by other factors. Motor vehicles are durable goods with longer replacement cycles, making their sales less sensitive to short-term inflationary pressures compared to non-durable goods.

• That being said, we hope that government subsidies aimed at mitigating the impact of inflation, such as the Budi MySubsidi Diesel program and the Subsidised Diesel Control System (SKDS) fleet card, will provide additional support. Additionally, the withdrawal of funds from Account Three of the Employee Provident Fund (EPF) could help alleviate the impact of inflation.

Source: TA Research - 12 Jun 2024