Malaysia’s June inflation steady at 2%, slower than expected

[KUALA LUMPUR] Malaysia’s inflation rate held steady at 2 per cent year on year in June, despite economists’ expectations it would trend higher following the removal of a petrol subsidy, a report by the Department of Statistics Malaysia (DOSM) showed on Wednesday (Jul 24).

The final figure remained the same as in the previous month, and is below economists’ projections of 2.2 per cent in a recent Reuters poll.

Core inflation, meanwhile, rose by 1.9 per cent from a year earlier, the same level as in the previous month.

Although the inflation rate rose at a slower pace than anticipated, economists indicated that the next significant factor influencing inflation will be the rationalisation of subsidies for RON95 petrol, which is widely used by Malaysians.

Most economists had anticipated that the government would start gradually removing the RON95 subsidy in June or July this year. However, Malaysia Prime Minister Anwar Ibrahim on Monday said that no decision had been made on the issue.

RHB Research economist Chin Yee Sian said that given RON95 petrol’s significant weightage of 5.5 per cent in the consumer price index (CPI) basket, the price hike will have a direct impact on inflation.

The research firm estimated that every increase of RM0.10 (S$0.03) in RON95’s retail price would have a 0.3 per cent percentage point upside in average annual inflation.

The subsidised price of RON95 is currently RM2.05 per litre, around 38 per cent lower than its unsubsidised price of RM3.30.

Maybank Investment Bank group chief economist Suhaimi Ilias said if the RON95 subsidy rationalisation is delayed to next year, the country’s inflation projection could lower to 2.1 per cent in 2024.

The investment bank forecast that Malaysia’s headline inflation will average at 2.4 per cent this year, and 3 per cent in 2025.

MIDF Research lowered its inflation forecast to 2.7 per cent in 2024, from 3.2 per cent earlier, anticipating that the phased subsidy removal for RON95 will be delayed to the end of the year.

DOSM chief statistician Mohd Uzir Mahidin said higher prices of food and beverages, restaurant and accommodation services, as well as education, have contributed to rising inflation in June.

The DOSM report indicated that 339 out of 573 – or nearly 60 per cent – of items in the CPI experienced price increases in June. Among these, the prices of 14 items went up by more than 10 per cent, while the prices of 136 items declined.

Prices of food and beverages, which constitute nearly 30 per cent of the total CPI, increased by 2 per cent in June from a year earlier.

Prices of housing, water, electricity, gas and other fuels – making up 23.2 per cent of the total CPI – increased 3.2 per cent in June.

Malaysia’s June inflation rate is lower than that of several Asia-Pacific countries, such as the Philippines’ 3.7 per cent, South Korea’s 2.4 per cent, and Indonesia’s 2.5 per cent.

Meanwhile, the eurozone’s inflation rose to 2.5 per cent on higher food prices, while the US inflation rate eased to 3 per cent in June.