• Inflation eased to 1.9%, after three months of being unchanged
   
• Core inflation remained steady at 1.9%, steadied since April 2024
   
• Restaurant category and Personal Care group continued to drive cost increases, but at a slower pace

• Malaysia's PPI increased by 1.3% in July 2024, with all sectors showing growth since March

• With muted inflation from diesel SRI and likely RON95 delays, we have lowered our 2024 inflation forecast to 2.0%

OVERVIEW

Malaysia’s Consumer Price Index (CPI) in August 2024 eased to 1.9% YoY after staying at 2.0% for the past three months and slightly below market expectations of 2.0%. Compared to the previous month, the CPI rose 0.1%, the same rate as in July. Year-to-date as of August, inflation averaged 1.8% (Jan-Aug 2023: 2.9%). Core inflation held steady at 1.9%, unchanged since April 2024. YTD core inflation stood at 1.9% (Jan-Aug 2023: +3.4%).

Urban CPI was ahead of the rural CPI, rose by 1.9% YoY in August 2024 spurred by Restaurants category (Aug urban: +3.3%; rural: 3.2%); Personal Care group (Aug urban: +3.2%; rural: 3.2%); Utilities category (Aug urban: + 3.1%; rural: + 3.4%) and Recreation, Sport & Culture (2.1%). CPI for the income group below RM3,000 grew by 1.7%, down from 1.8% in July, driven by increases in the Restaurants category (+4.3%), Personal group (+3.1%), and Utilities (+2.9%).

Analyzing the CPI sub-components (Table 4), the moderation in August 2024 inflation was largely driven by softer price inflation of most services components that helped to offset the rise in prices of Alcoholic Beverages & Tobacco and Transportation. Inflation for Restaurant category eased to 3.2% in August (Jul: 3.4%), primarily due to a price decline in Accommodation Services (Aug: - 0.5%, Jul: +0.1%) and Beverage preparation services to 4.2% (Jul: 4.3%). Meanwhile, inflation for Personal Care group remained steady at 3.2%, supported by the Jewelry & Watches expenditure class, which recorded an inflation rate of 17.5% (Jul: 18.1%). Meanwhile, food inflation remained unchanged at a three-year low of 1.6% in August 2024, the same rate as recorded in July 2024 – with 149 out of 247 food items (60.3%) seeing price hikes compared to August 2023. The Food at Home subgroup increased by 0.3% (July 2024: 0.3%), driven primarily by a 2.2% rise in the Vegetables expenditure class (July: 2.9%). Food Away from Home rose by 3.1%, down slightly from 3.2% the previous month. Meanwhile, Alcoholic Beverages & Tobacco (Aug: 1.1%, Jul: 0.9%) and transport (Aug: 1.3%, Jul: 1.2%) were the only two CPI components recoding higher price inflation last month, chiefly due to costlier alcoholic beverages and purchase of vehicles respectively.

Compared to regional countries, Malaysia’s CPI is lower than inflation rates in the Philippines, Indonesia, and Republic of Korea. Eurozone inflation eased to 2.2% in August (Jul: 2.6%), spurred by slower energy inflation at -3.0%, while food inflation grew to 2.3%. The U.S. inflation rate eased to 2.5% in August (July: 2.9%), supported by transportation (7.9%) and food inflation moderating to 2.1%. Additionally, inflation in the Republic of Korea fell to 2.0% in August (Jul: 2.6%), driven by a slower rise in the Transport group, which increased by 1.8% (Jul: 5.2%). Indonesia's inflation rate maintained at 2.1%, primarily driven by moderate food inflation at 3.4%, health inflation at 1.7%, and accommodation inflation at 2.2%. The Philippines slowed to 3.3% (Jul: 4.4%), driven by food inflation at 3.9%, alcoholic beverages and tobacco at 3.3%, and transport at -0.2%. Moreover, Thailand's annual headline inflation rate moderated to 0.4% (Jul: 0.8%), thanks to a decline in non-food products to -0.7%, while housing group inflation remained at -0.9%. Conversely, China’s inflation rose to 0.6%, with food inflation increasing by 2.8%, while non-food inflation eased to 0.2% from 0.7% the previous month.

Malaysia's Producer Price Index (PPI), which measures the prices of goods at the factory gate, grew by 1.3% in July 2024 (Jun: 1.6%). Since March 2024, all sectors have recorded an increase. The Agriculture sector rose by 3.4%, mirroring the previous month, with the index for Growing of perennial crops increasing by 8.0%.

The Mining sector saw a 2.2% rise (Jun: 4.6%), driven by a 3.0% increase in the Extraction of crude petroleum index. Similarly, the Manufacturing sector edged up by 0.9% (Jun: 1.1%), largely due to a 7.0% rise in the Manufacture of computer, electronic, and optical products. Additionally, the indices for Water supply and Electricity & gas supply rose by 9.0% and 0.3%, respectively.

On a monthly basis, the PPI fell by 0.2% (Jun: -0.1%), driven by a 0.3% drop in Manufacturing (Jun: 0.1%), and a 0.8% decline in Electricity & gas supply (Jun: - 1.1%). Meanwhile, Agriculture rose by 1.1% (Jun: 1.1%), Mining increased by 0.7% (Jun: -3.4%), and Water supply was up 0.8% (Jun: 0.1%).

OUTLOOK

Malaysia's inflation slowed to 1.9% YoY in August 2024, after three months of stability since May and slightly below market expectations. Underlying demand pressure remained contained as core CPI steadied at 1.9% YoY for the 5th consecutive month. Thus far, the moderate inflation in Jun-August was aided by the government’s mitigation measures to curb excessive price hikes and profiteering after the rationalization of fuel subsidies started with diesel on Jun 10 for Peninsular Malaysia.

Due to minimal inflation effects from diesel subsidy changes and the anticipated delay in RON95 rationalization, we have revised our 2024 inflation forecast and project inflation to average 2.0% in 2024 (BNM forecast: 2.0%-3.5%, 2023: 2.5%), hitting the lower end of BNM’s target range. However, further escalation in the Middle East could pose an upside risk to global commodity prices. Nonetheless, we expect inflation to remain within Bank Negara Malaysia's 2.0% to 3.5% range. With stable inflation and strong domestic growth, Bank Negara Malaysia is likely to remain on the sidelines, with no rush to adjust the overnight policy rate. BNM is likely to keep the overnight policy rate at 3.00% for the rest of the year and 2025.

Source: BIMB Securities Research - 24 Sept 2024