WITH food prices rising more slowly, Malaysia’s year-on-year inflation edged down to 4.5 per cent in September, lower than August’s 4.7 per cent rate and just below the 4.6 per cent forecast by 16 economists in a Reuters poll.

Consumer price index (CPI) data from the Department of Statistics Malaysia (DOSM) on Friday (Oct 21) showed that food inflation slowed to 6.8 per cent, down from 7.2 per cent in August.

But some segments saw slightly higher inflation in September, such as restaurants and hotels (6.9 per cent, up from 6.4 per cent), transport (5.3 per cent, up from 5.2 per cent), as well as furnishings, household equipment and household maintenance (4.4 per cent, up from 4.3 per cent).

On a monthly basis, the CPI rose 0.1 per cent in September, compared to a 0.2 per cent rise in August.

For the third quarter of 2022 overall, inflation was 4.5 per cent, higher than the 2.2 per cent in the same period last year. This was mainly driven by higher inflation for food and restaurants (7 per cent) as well as hotels (6.4 per cent).

“The price of administered items – such as toll fee, liquified petroleum gas, petrol (Ron 95) and diesel – has eased the inflation rate in September,” said DOSM.

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Separately, DOSM data found that four-fifths of items in the index – 448 out of 552 – saw their prices go up in September. Around 15 per cent or 67 items saw a price hike of over 10 per cent. Prices declined for 14 per cent or 62 items.

Malaysia’s core inflation, which excludes volatile items and administered prices of goods by the government, was 4 per cent in September, up from 3.8 per cent in August.

Wong Chin Yoong, an economics professor at the University Tunku Abdul Rahman Malaysia, said the latest inflation figure is a good sign that the cost of living is moderating.

“I believe that inflation has already peaked (in August) and the impact of rising interest rates will take effect soon. The economic slowdown due to an interest hike normally takes place after 6 months of the policy implementation,” he told The Business Times.

In a research note on Friday, Barclays Singapore senior regional economist Brian Tan expects headline inflation to fall further in the fourth quarter to 3.8 per cent.

But UOB senior economist Julia Goh and economist Loke Siew Ting see Malaysia’s CPI staying above 4 per cent in the coming months, before decelerating towards the 2 per cent level by the fourth quarter next year due to stickier global inflation and heightened currency volatility.

Given the moderating inflation rate, Barclays and UOB economists are of the view that Malaysia’s central bank may pause its hiking of interest rates at its next monetary policy meeting in November.

Barclays’ Tan said: ”We reduce our 2022 forecast slightly to 3.4 per cent from 3.5 per cent and continue to expect Bank Negara to pause in November, though the risk is for another back-to-back 25 basis points hike.”

Malaysia’s benchmark overnight policy rate (OPR) is now at 2.5 per cent after the recent hike of 25 basis points in September. The OPR has been raised by a total of 75 basis points in 3 consecutive meetings this year. 

UOB’s Goh and Loke expect this to stay unchanged in November as the central bank assesses the effect of its cumulative rate hikes. “Given that inflation expectations are anchored to official targets and risks to the domestic growth outlook are tilting to the downside, we believe Bank Negara will tread more cautiously despite a more aggressive Fed rate hike path and weaker currency,” they said.

Earlier, Malaysia’s central bank had expected the country’s inflation to peak in the third quarter before moderating thereafter due to dissipating base effects and the easing of global commodity prices.

In its monetary policy statement on Sep 8, Bank Negara anticipated underlying or core inflation to average closer to the upper end of the 2 to 3 per cent forecast range in 2022, with some signs of demand-driven pressures amid a high-cost environment.

Compared with other countries in South-east Asia, Malaysia’s September inflation rate was lower than that of Thailand (6.4 per cent), the Philippines (6.9 per cent) and Indonesia (6 per cent). The department noted that Malaysia’s inflation rate was also lower than the Eurozone (10 per cent), the United States (8.2 per cent) and South Korea (5.6 per cent).