Malaysia inflation up 1.8% in February, beating economists’ forecast

[KUALA LUMPUR] Malaysia’s inflation rate edged up 1.8 per cent year on year in February, on the back of higher utility charges and transport costs, a Department of Statistics Malaysia (DOSM) report indicated on Monday (Mar 25).

The country’s inflation had stayed at 1.5 per cent for three consecutive months since November. The final figure in February outpaced the forecast of 1.4 per cent made by 13 economists in a recent Reuters poll.

Core inflation, meanwhile, rose 1.8 per cent in February, the same growth rate as January’s.

The accelerated inflation, however, is within economists’ expectations, as the country has implemented new taxes and price adjustments, including adjustments to electricity and water tariffs.

Also implemented was a 10 per cent low-value goods tax on items purchased online; the tax applies to items costing below RM500 (S$142) and delivered from abroad.

The oil-producing nation is also mulling a targeted fuel subsidy to replace its current blanket subsidy, which costs the government around RM50 billion a year.

In a note on Monday, OCBC said Malaysia’s inflation outlook continues to hinge on the timeline for the changes to the fuel subsidy, and the mechanics of how this will work out.

“To that end, we maintain our forecast for 2024 headline inflation at 2.5 per cent, implying some pickup in price pressures in the coming months,” said OCBC.

Last week, Bank Negara Malaysia projected headline inflation to average between 2 and 3.5 per cent in 2024, amid contained cost pressures from easing global supply conditions.

RHB Research economist Chin Yee Sian noted that the country’s inflation risks are cushioned by steady food prices, partially due to the continuation of food subsidies and price controls for staple food items.

“The actual magnitude of the upside risks hinges on a few factors, including the timing of the implementation of the fuel subsidy rationalisation, the quantum of prices and tariffs adjustments, as well as the strength of household spending and business costs,” she added.

RHB Research maintained the headline inflation outlook forecast at 3.3 per cent for this year.

MIDF Research expects the headline inflation to trend higher in coming months and average at around 3.2 per cent this year, with the price adjustments on utility charges and the implementation of targeted fuel subsidy as early as June.

“We may see non-food inflation come in at around 2.9 per cent, while better domestic supply and normalised global commodity prices could push food inflation rate lower, at around 3.7 per cent in 2024,” said MIDF.

The research company cautioned that although food prices continue to decline, Malaysia – being a net importer of food – is highly exposed to external factors and currency movements.

For the first two months of 2024, the country’s inflation rate rose 1.6 per cent, compared to 3.7 per cent for the corresponding period last year.

The DOSM report indicated that the prices of 337 out of 573 – or nearly 59 per cent – of items in the consumer price index (CPI) went up in February. Among these, the prices of 10 items rose by more than 10 per cent. The prices of 143 items fell.

Prices of food and beverages, which constitute nearly 30 per cent of the total CPI, recorded a slower increase of 1.9 per cent in February from the year before.

Prices of housing, water, electricity, gas and other fuels – contributing 23.2 per cent of the total CPI – surged 2.7 per cent in February.

Overall, Malaysia’s inflation rate in February was lower than in several Asia-Pacific countries. The Philippines had one of the higher prints in the region, at 3.4 per cent. South Korea was at 3.1 per cent, and Indonesia, 2.8 per cent.

The eurozone experienced inflation of 2.6 per cent, and US inflation stood at 3.2 per cent in November.