• Inflation slowed to 1.8%, below expectations
   
• Eased inflation was driven by lower tech and clothing costs
   
• Core inflation remained at 1.8% for the third consecutive month

• Malaysia's PPI slipped 2.4% in October, led by declines in Mining and Manufacturing

• We maintain our 2024 inflation forecast at 2.0%, indicating subdued inflation due to domestic policy changes

Malaysia's Consumer Price Index (CPI) eased to 1.8% in November, below market expectations of a 2.1% rise, from 1.9% in October. The CPI declined by 0.1% in November compared to the previous month, marking its first drop since August 2021, driven by lower technology and clothing costs. Year-to-date as of November, inflation averaged 1.9% (Jan-Nov 2023: +2.5%). Core inflation remained at 1.8%, marking its lowest level since April 2024. YTD core inflation stood at 1.8% (Jan-Nov 2023: +3.1%).

Both urban and rural areas is experiencing slower CPI inflation in November with urban CPI remained ahead the rural CPI. The urban headline inflation rate slowed to 1.7% YoY (Oct: +1.8%), while the rural inflation moderated to 1.6% YoY (Oct: 1.7%). The increase was driven by Personal Care group (Nov urban: +3.4%; rural: +3.4%); Utilities category (Nov urban: + 3.1%; rural: + 3.2%); Restaurants category (Nov urban: +2.9%; rural: 2.9%); and Food & Beverages (2.8%). CPI for the income group below RM3,000 rose at a slower pace, easing to 1.6% in November from 1.7% in October, driven by increases in the Restaurants category (+3.8%), Utilities (+3.2%), and Personal group (+2.8%).

In November, 56.4% of items (323 out of 573) experienced price increases, down from 58.1% (333 items) in October. Of these, 314 items (Oct: 322) saw price hikes of 10% or less, while 9 items (October: 11) recorded increases exceeding 10%. Meanwhile, 146 items (Oct: 142) showed price declines, and 104 items (Oct: 98) remained stable. Analysing the CPI sub-components, slower inflation growth in November 2024 was mainly due to slower increases in Health (1.2%) and Transport (0.4%). Food inflation accelerated to 2.6% (Oct: 2.3%), while the utilities group saw a slight rise of 3.2% (Oct: 3.1%). Technology inflation continued to decline to -3.9% (Oct: -1.7%), driven by a decrease in Information & Communication services (Nov: - 4.4%, Oct: -1.8%). Clothing remained in negative territory at -0.3%. Other categories, including Personal Care (3.4%), Restaurant (2.8%), Recreation (2.0%), Education (1.5%), Alcoholic Beverages (0.8%), Furnishings (0.5%), and Insurance & Financial Services (0.5%), saw price increases at the same rate as the previous month. Food inflation rose by 2.6% in November, marking the highest growth since November 2023, with 142 out of 247 food items (57.5%) seeing price hikes. The rise was driven by a 4.8% increase in Food away from home, up from 4.1% in October, while Food at home, which accounts for 52.0% of the total Food & Beverages group, remained unchanged at 0.6%, the same rate as in October.

Compared to other regional countries, Malaysia's CPI is lower than that of Vietnam and the Philippines. Eurozone inflation accelerated to 2.2% in November 2024 (Oct: 2.0%), driven by higher food inflation (2.7%) and services (3.9%). U.S. inflation increased to 2.7% in November (Oct: 2.6%), with higher food inflation (2.4%), while energy inflation eased to -3.2%. South Korea's inflation slowed to 1.5% (Oct: 1.3%), due to a smaller decline in the Transport group, which fell to -1.1% in November (Oct: -4.0%). Indonesia's inflation grew at a slower pace of 1.6% (Oct: 1.7%), mainly due to slower food inflation (1.7% vs. 2.4%). In the Philippines, inflation increased to 2.5% (Oct: 2.3%), driven by higher household maintenance cost (2.7% vs. 2.4%), alcoholic beverages (3.1% vs. 3.0%), and personal care (2.9% vs. 2.8%). Thailand’s inflation rose to 1.0% (Oct: 0.8%) due to higher inflation in Transport (1.4% vs. -0.3%), while food inflation slowed to 1.3% (Oct: 2.0%). Lastly, China’s inflation in November increased at a slower pace to 0.2%, (Oct: 0.3%), due to a slowdown in food inflation (1.0%), whereas non-food inflation remained unchanged at 0.0%.

Malaysia's Producer Price Index (PPI), which measures the prices of goods at the factory gate, recorded a deeper decline of 2.4% in October 2024, compared to the 2.1% drop seen in the previous month. The decline in Malaysia’s PPI for Local Production in October 2024 was primarily driven by the Mining sector, which contracted by 17.3% (Sep: -16.1%). The index for the Extraction of crude petroleum dropped sharply by 21.7%, while the Extraction of natural gas slipped by 1.7%. Additionally, the Manufacturing sector recorded a 2.6% decline (Sep: -1.5%), largely impacted by the Manufacture of coke and refined petroleum products index, which fell by 21.6%. On the other hand, the agriculture, forestry, and fishing sector experienced robust double-digit growth of 13.8% (Sep: 5.8%), with the Growing of perennial crops index surging by 24.3%. In the utility sector, the Water supply index rose by 6.9%, and the Electricity and gas supply index edged up by 0.8%.

On a monthly basis, the PPI fell 1.5% MoM in September 2024 (Aug: -0.9%), with all sectors declining except Agriculture, which rose 6.0%. The Mining sector dropped 2.7%, Manufacturing fell 1.2%, Water supply decreased 0.1%, and Electricity & gas dipped 0.1%

OUTLOOK

Malaysia's inflation eased further in November, undershooting market expectations due to declining costs in technology and clothing. Muted demand pressures kept core CPI steady at 1.8% YoY - the smallest increase in seven months. The year-todate (YTD) inflation rate of 1.9% aligns with our 2024 full-year forecast of 2.0%, underscoring the minimal impact of policy changes on price dynamics. The 2024 inflation outlook is anchored by stable prices, resilient domestic growth, and a limited influence from adjustments to diesel subsidies. Notably, YTD core CPI inflation fell to 1.8% YoY, down sharply from 3.1% in 2023, reflecting easing underlying price pressures. Simultaneously, Malaysia's PPI contracted faster in October at -2.4% YoY (Sep: -2.1%), marking its second deflationary month since January 2024. This lack of upward pressure on producer prices suggests sellers are unlikely to pass costs onto consumers, supporting short-term price stability.

Looking ahead to 2025, inflation is expected to edge higher to 2.7% (MoF estimate: 2.0%-3.5%), driven by supply-side factors stemming from structural reforms. Key contributors include the retargeting of RON95 subsidies in mid-2025, a minimum wage hike from RM1,500 to RM1,700 in February 2025, a sales tax review, and the expansion of the services tax scope in May 2025 - all of which are likely to elevate operating costs and, in turn, consumer prices. Transportation costs are also projected to rise with higher retail petrol prices following the subsidy adjustments. Inflation stability will hinge on domestic policy measures and external developments, including demand-driven price pressures from wage increases, U.S. policy shifts, global commodity trends, and currency fluctuations. Geopolitical risks, such as the ongoing Gaza conflict and U.S. opposition to a ceasefire, could exacerbate commodity price volatility, emphasizing the importance of monitoring global factors impacting Malaysia’s inflation outlook.

In this context of heightened uncertainties, Bank Negara Malaysia (BNM) is expected to maintain the Overnight Policy Rate (OPR) at 3.00% throughout 2025. While inflationary pressures remain manageable and economic growth prospects robust, BNM is likely to adopt a cautious stance, closely observing global economic conditions before adjusting monetary policy. This measured approach aims to strike a balance between safeguarding growth and addressing potential inflationary risks in a volatile global environment

Source: BIMB Securities Research - 23 Dec 2024