Summary

• Headline Inflation: Moderated to 1.9% YoY, below Jul’s rate of 2.0% (TA/Consensus: 2.0%), with a slight MoM uptick of 0.1%.

• Core Inflation: Held steady at 1.9% YoY since April 2024.

• States Differences: Inflation rates varied, with Pulau Pinang leading at 3.3% YoY and WP Labuan recorded the lowest at 0.5% YoY.

• Regional Differences: Malaysia was lower than inflation in Vietnam (3.5%), Philippines (3.3%), Indonesia (2.1%) and Republic of Korea (2.0%). However, the rate was higher than China (0.6%) and Thailand (0.4%).

Key Components

• Six components demonstrated decelerated annual growth, namely, (1) Housing, Water, Electricity, Gas & Other Fuels; (2) Furnishings, Household Equipment & Maintenance; (3) Health; (4) Recreation, Sport & Culture; (6) Education; and (7) Restaurants & Accommodation Services. These groups contributed 37.9% of the total CPI basket (refer to Figure 1),

• Meanwhile the largest contributor, the Food & Beverages index (29.8% of total CPI) recorded sustained growth during the month. The index increased by 1.6% YoY, the same rate as recorded in July 2024. The main subgroup of Food at home remained at 0.3% YoY, same the rate as recorded in July 2024. Meanwhile, the main subgroup of Food away from home also increased more slowly to 3.1% (Jul24: 3.2%).

• Inflation for the Restaurant & Accommodation Services grew by 3.2% YoY in August 2024, a slight moderation from 3.4% in July 2024. This deceleration was primarily driven by a slowdown in the Beverage Preparation Services subgroup, which recorded a 4.2% YoY increase (down from 4.3% in July 2024), along with a 0.5% YoY contraction in Accommodation Services.

• Inflation for Transport recorded an increase of 1.3% YoY in August 2024 as compared to 1.2% YoY in July 2024. The increase was contributed by the main subgroup of Operation of personal transport equipment, which increased at the same rate of 1.8% YoY as recorded in July 2024. Expenditure class of Fuels & lubricants for personal transport equipment increased at the same rate as recorded in the previous month (1.9% YoY).

Thoughts

• We expect the inflation rate for September to remain manageable, likely staying around the long-term average of 2.0% YoY (from January 2012 to August 2024), barring any adjustments to fuel prices, especially for RON95. If the government raises the ceiling price by RM0.40, it could impact fuel-related sectors, including Food & Beverages and Restaurant & Accommodation Services. Such potential policy changes might temporarily push inflation closer to the 3% mark.

• Robust economic growth can lead to rising inflation when demand for goods and services outpaces supply. As businesses expand and employment rises, increased consumer spending drives prices up. Additionally, strong growth can lead to higher wages, pushing up production costs, which are often passed on to consumers. This demand-pull and cost-push effect can elevate overall inflation, especially if growth is rapid or supply constraints exist.

• As for now, we expect the CPI to stay within the 2.5%–3.0% range, with a midpoint of 2.7% (YTD24: 1.8% YoY). If the anticipated removal of the RON95 subsidy materializes in the final quarter, monthly CPI changes could reach the 3% level, potentially causing ripple effects throughout the economy. However, if the RON95 subsidy rationalization is postponed until next year, the average CPI for this year could be significantly lower, likely around 2.0%. Bank Negara Malaysia has previously indicated that for the year overall, both average headline and core inflation are expected to remain within the projected ranges and are unlikely to exceed 3%.

Source: TA Research - 24 Sept 2024