• Inflation inclined to 1.9%, a tad higher than market estimates of 1.8%
   
• Higher inflation was driven by food and personal care prices
   
• Core inflation remained at 1.8%, the weakest growth in six months

• Malaysia's PPI dropped 2.1% in September, driven by Mining and Manufacturing declines, while Agriculture and utilities grew

• We maintain our 2024 inflation forecast at 2.0%, reflecting muted inflation from the diesel SRI

Malaysia's Consumer Price Index (CPI) picked up to 1.9% in October 2024, slightly exceeding market expectations and September's 1.8%, the lowest in five months. Compared to the previous month, the CPI rose by 0.2% in October, the highest since June, following no change in September. Year-to-date as of October, inflation averaged 1.9% (Jan-Oct 2023: +2.7%). Core inflation remained at 1.8%, marking its lowest level since April 2024. YTD core inflation stood at 1.8% (Jan-Oct 2023: +3.2%).

Urban CPI remained ahead the rural CPI, rose by 1.8% YoY in October 2024 spurred by Personal Care group (Oct urban: +3.3%; rural: +3.3%); Utilities category (Oct urban: + 3.1%; rural: + 3.3%); Restaurants category (Oct urban: +2.9%; rural: 3.2%); and Food & Beverages (2.4%). CPI for the income group below RM3,000 grew by 1.7%, up from 1.6% in September, driven by increases in the Restaurants category (+3.9%), Utilities (+3.0%), and Personal group (+2.9%).

In October, 58.1% of items, equivalent to 333 out of 573 (compared to 59.3% or 340 items in September), experienced price increases. Among these, 322 items (September: 330 items) saw price hikes of 10% or less, while 11 items (September: 10 items) recorded increases exceeding 10%. Meanwhile, 142 items (September: 138 items) showed price declines, and the prices of 98 items (September: 95 items) remained stable. Analysing the CPI sub-components (refer to Table 4), the uptick in October 2024 inflation was primarily driven higher increases in Food (2.3%) and Personal Care (3.4%). Meanwhile, Restaurant (2.8%), Recreation (2.0%), Health (1.4%), Transport (0.7%), and Furnishings & Household Equipment (0.5%) saw slower growth. In contrast, inflation for Communication dropped to -1.7% (Sep: 0.4%), due to a decline in Information & Communication Services (Oct: -1.8%, Sep: 0.8%). Clothing remained negative at -0.2%. Meanwhile, Utilities (3.1%), Education (1.5%), Alcoholic Beverages (0.8%), and Insurance & Financial Services (0.5%) remained unchanged from the previous month. Food inflation rose by 2.3% in October 2024, up from a 1.6% increase in the previous three months, marking the highest growth since December 2023 – with 145 out of 247 food items (58.7%) seeing price hikes compared to October 2023. The rise was driven by a 4.1% increase in the Food away from home subgroup, up from 2.8% in September 2024. Meanwhile, the Food at home subgroup, which accounts for 52.0% of the total Food & Beverages group, increased by 0.6% in October 2024, compared to 0.4% in September 2024.

In comparison to other regional countries, Malaysia's CPI is lower than that of the Philippines. Eurozone inflation rose to 2.0% in October 2024 (Sep: 1.7%), driven by higher food inflation (2.9%) and a slight uptick in non-energy industrial goods (0.5%). U.S. inflation increased to 2.6% in October (Sep: 2.4%) due to a slower decline in energy inflation (Oct: -4.9% vs. Sep: -6.8%). South Korea's inflation slowed to 1.3% (Sep: 1.6%), impacted by a sharper decline in transport inflation (-4.0% vs. -1.2%). Indonesia's inflation grew at a slower pace of 1.7% (Sep: 1.8%), mainly due to slower food inflation (2.4% vs. 2.6%) and a decline in Transport inflation (-0.1% vs. 0.9%). In the Philippines, inflation increased to 2.3% (Sep: 1.9%), driven by higher food inflation (2.9% vs. 1.4%), while utilities rose more slowly at 2.4%. Thailand’s inflation rose to 0.8% (Sep: 0.6%) due to stable housing inflation (0.4%) and slower growth in food inflation (2.0% vs. 2.3%). Lastly, China’s inflation rose by 0.3% (Sep: 0.4%), driven by declines in transport (-4.8%) and housing (-0.1%), while food inflation increased to 3.3% (Sep: 2.9%).

Malaysia's Producer Price Index (PPI), which measures the prices of goods at the factory gate, declined by 2.1% in September 2024, reversing the 0.3% growth recorded in the prior month. The decline in Malaysia’s PPI for Local Production in September 2024 was primarily driven by the Mining sector, which recorded a significant drop of 16.1% (Aug: -8.3%), with crude petroleum (-18.6%) and natural gas (-7.9%) falling. Additionally, the Manufacturing sector shrank by 1.5% (Aug: 1.0%), largely due to a sharp 18.7% decline in petroleum products index. In contrast, the Agriculture sector rose by 5.8% (Aug: 2.7%), supported by an 11.2% increase in perennial crops index. Among utilities, the Water supply index increased by 7.8%, while the Electricity and gas supply index edged up by 0.3%.

On a monthly basis, the PPI fell 1.5% MoM in September 2024 (Aug: -0.9%), with all sectors declining except Agriculture, which rose 1.6%. The Mining sector dropped 3.4%, Manufacturing fell 1.7%, Water supply decreased 0.5%, and Electricity & gas dipped 0.3%.

OUTLOOK

Inflation in Malaysia increased modestly in October, exceeding expectations, primarily due to higher food and personal care prices. Demand pressures remained subdued, with core CPI unchanged at 1.8% YoY, marking the lowest rise in six months. The year-to-date (YTD) inflation reading of 1.9% aligns closely with our 2024 full-year inflation forecast of 2.0%, underscoring the muted impact of policy changes on overall price pressures. The inflation for 2024 is supported by stable price levels, resilient domestic growth, and limited effects from the adjustment to diesel subsidies. Inflation is expected to moderate, supported by easing food inflation (10M24: 1.8% YoY; 2023: 4.8%) and stable non-food inflation (10M24: 1.7%; 2023: 1.3%). YTD core CPI inflation also declined to 1.8% YoY, compared to 3.0% in 2023, signalling a reduction in underlying price pressures.

Looking ahead to 2025, we forecast inflation to rise modestly to 2.7% (MoF estimate: 2.0%-3.5%), contingent on the implementation of additional subsidy rationalization, particularly for fuels. Domestic policy measures and external developments, such as global supply chain disruptions, will be critical in influencing price stability. Factors such as demand-driven price pressures, potential inflationary policies under a new U.S. administration, global commodity price dynamics, and currency fluctuations could also shape the inflation trajectory. Additionally, external risks persist, particularly rising global commodity prices fuelled by geopolitical tensions in the Middle East. The ongoing conflict in Gaza, coupled with the United States’ opposition to a ceasefire resolution, could exacerbate commodity price volatility, creating upward pressure on inflation. These risks underscore the need for vigilance in monitoring global developments that could disrupt Malaysia’s inflation trajectory

Amid these uncertainties, Bank Negara Malaysia (BNM) is likely to maintain the Overnight Policy Rate (OPR) at 3.00% throughout 2025. While inflationary pressures appear manageable and economic growth prospects remain robust, BNM is expected to adopt a cautious stance, carefully monitoring global economic conditions before making any monetary adjustments. This approach reflects the need to balance downside risks to growth with upside risks to inflation as Malaysia navigates an increasingly volatile global environment.

Source: BIMB Securities Research - 25 Nov 2024