Malaysia’s inflation eases to 2.4% in June; core inflation moderates to 3.1%
Tan Ai Leng
[KUALA LUMPUR] Malaysia’s inflation rate moderated to 2.4 per cent year on year in June – from 2.8 per cent in May – as prices of food and hospitality inclined at a slower pace.
The headline consumer price index (CPI) continued to climb at a slower pace after hitting 4.7 per cent growth in August last year, said the Department of Statistics Malaysia (DOSM) on Monday (Jul 24).
The latest inflation rate was in line with the projection of 13 economists in a recent Reuters poll. Core inflation, which excludes volatile items and those with government-administered prices, also saw slower growth of 3.1 per cent year on year in June, from 3.5 per cent in the previous month.
Economists expect inflationary pressures to continue to ease in the coming months, with Bank Negara Malaysia likely to hit the pause button on interest rate hikes in the second half of 2023.
OCBC senior Asean economist Lavanya Venkateswaran said the June headline prints were quite broad-based and this has “brought real rates further in positive territory as compared to May”.
Barclays senior regional economist Brian Tan said the visible drop in headline inflation was a reflection of a high base effect last year due to the surge in global food and energy prices triggered by the Russia-led war in Ukraine.
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On core inflation, Bank of America economists Faiz Nagutha and Ang Kai Wei expect the monthly growth momentum to stay around an average of 0.2 per cent in coming months due to cost pressures.
They said the minimum wage hike starting in July and the higher cost for import materials due to the weaker ringgit are the reasons that fuel the core inflation growth. “Nevertheless, given the favourable base effects, core inflation should still end the year at just under 3 per cent.”
Looking ahead, OCBC expects Malaysia’s inflation rate to average at 2.9 per cent in 2023 and 2.5 per cent next year.
“(The easing of inflationary pressures) will allow Bank Negara Malaysia to remain on a prolonged pause through the rest of the 2023 and into 2024,” said Venkateswaran in a note on Monday.
Barclays forecasts Malaysia’s inflation rate to average 2.5 per cent, below the central bank’s projection of between 2.8 per cent and 3.8 per cent.
“Our base case is for no further policy rate hikes, but the door is still open,” said Tan, adding that if there is another 25 basis point hike, it will probably be aimed at easing core inflation and not supporting the currency.
Malaysia’s overnight policy rate (OPR) currently stands at 3 per cent after a 25 basis points hike in May this year.
According to the DOSM report, 421 out of 552 – around 76 per cent – of the items in the index saw price increases in June. Among these, the prices of 17 items went up by more than 10 per cent, while the prices for 90 items fell.
Prices of food and non-alcoholic beverages, which constitute 29.5 per cent of the total CPI, increased 4.7 per cent in June – lower than 5.9 per cent in May.
Inflation for the restaurant and hotels segment also eased to 5.4 per cent in June (from 6.7 per cent in May).
DOSM chief statistician Mohd Uzir Mahidin said the higher food prices remained the main reason for price growth but this was offset by lower petrol prices. The price for RON 95 petrol averaged at RM3.36 (S$0.97) per litre in Q2 2023, 22 per cent lower than the same quarter last year.
Overall, Malaysia’s inflation rate in June remained lower than some markets in the Asia-Pacific, including the Philippines (5.4 per cent), Indonesia (3.5 per cent) and South Korea (2.7 per cent). It was also lower than in the eurozone (5.5 per cent) and the United States (3 per cent).
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