Malaysia’s inflation moderates to 1.8% in September, beats expectations due to slower transport cost growth
The country’s inflation has remained steady at 1.9% for five consecutive months, from April to August
[KUALA LUMPUR] Malaysia’s inflation rate eased to 1.8 per cent year on year (yoy) in September, as prices of transportation and communication services grew at a slower pace, a Department of Statistics Malaysia (DOSM) report indicated on Thursday (Oct 24).
The final figure for inflation in September was lower than August’s 1.9 per cent and the forecast of 1.9 per cent made by a group of economists in a recent Reuters poll.
The country’s inflation remained steady at 1.9 per cent for five consecutive months, from April to August.
Core inflation, meanwhile, rose 1.8 per cent in September, lower than the 1.9 per cent in the previous month.
From January to September, the country’s inflation rate increased by 1.8 per cent, compared with 2.8 per cent during the same period last year, signalling significant easing of inflationary pressures as price increases moderated over the year.
This result is in line with the official projection of 1.5 to 2.5 per cent for the current year, reflecting that Malaysia’s inflation is staying within the expected range set by the government.
Higher inflation in 2025
The government expects an average inflation rate of 2 to 3.5 per cent next year, as it plans to gradually phase out more subsidies starting in mid-2025, a move that could lead to higher prices and impact future inflation levels.
OCBC senior Asean economist Lavanya Venkateswaran noted that Malaysia’s inflation has been surprisingly benign in 2024, with both the headline and core inflation averaging 1.8 per cent in the first to third quarter this year.
“We see modest downside risks to our 2024 average headline inflation forecast of 1.9 per cent. Inflation in 2025 will be closely associated with fiscal outcomes,” she said in a note on Thursday.
In addition to subsidy rationalisation – particularly the removal of the blanket subsidy for RON95 petrol – the increase in minimum wages and civil servant salaries will also impact the inflation outlook for 2025.
“We estimate the retail prices of RON95 could rise by 20 to 25 per cent from July next year, pushing our estimate of average inflation higher to 2.6 to 2.8 per cent yoy in 2025,” said Venkateswaran.
Despite expectations of rising inflation, economists believe that Bank Negara will maintain its monetary policy stance, keeping the overnight policy rate unchanged at 3 per cent for this year and the next.
Standard Chartered economists Jonathan Koh and Edward Lee noted that the central bank is likely to overlook any temporary inflation spikes resulting from subsidy rationalisation.
“However, there is a risk of one more rate hike if second-round inflationary effects take hold,” they said in a report.
Driving factors behind easing inflation
In September, the prices of 340, or 59.3 per cent, of 573 items in the consumer price index (CPI) went up, according to DOSM.
The easing inflation growth was attributed to the declining price growth of transportation – weighed around 11.3 per cent of total CPI – and communication services (6.6 per cent of total CPI), which increased 1.1 and 0.4 per cent, respectively.
Compared with countries in the Asia-Pacific region, Malaysia’s inflation rate in September was higher than South Korea (1.6 per cent) and Thailand (0.6 per cent), but lower than the Philippines’ 1.9 per cent, and the same pace as Indonesia’s 1.8 per cent.
The eurozone experienced inflation of 1.7 per cent, and US inflation stood at 2.4 per cent in September.
