Malaysia’s inflation eases to 3.8% in December, bringing full-year rate to 3.3%

[KUALA LUMPUR] Malaysia’s inflation rate continued to moderate to 3.8 per cent in December, as food prices grew at a slower pace, according to consumer price index (CPI) data from Department of Statistics Malaysia (DOSM) on Friday (Jan 20).

This was down from 4 per cent in both November and October, and marginally lower than the forecast of 3.9 per cent in a Reuters poll of 15 economists.

On a monthly basis, however, the CPI rose 0.2 per cent from November to December.

The December figure brought full-year inflation to 3.3 per cent for 2022, up from 2.5 per cent in the previous year.

DOSM chief statistician Mohd Uzir Mahidin noted that price increases for the food and non-alcoholic beverages segment – which is the main contributor to inflation – slowed to 6.8 per cent in December, from 7.3 per cent in November.

Slower price increases were seen in most categories, though by small margins. These included transport (4.9 per cent in December, from 5 per cent in November) as well as furnishings, household equipment and routine household maintenance (3.7 per cent in December, from 3.8 per cent in November).

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But inflation picked up for restaurants and hotels, reaching 7.4 per cent, from 7 per cent in November. The only other group with higher inflation in December was housing, water, electricity, gas and other fuels, at 1.5 per cent, up marginally from 1.4 per cent in November.

In December, prices rose for 431 out of 552 items in the index, or about 78 per cent of them. Increases of more than 10 per cent were recorded for 41 items, fewer than November’s 60 such items.

Core inflation – which excludes volatile items and those with government-administered prices – was 4.1 per cent in December, slightly lower than 4.2 per cent in November.

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This was the first time in 15 months that core inflation slowed, noted UOB economists Julia Goh and Loke Siew Ting. They expect the downward trend to continue towards 2023, with the assumption that price controls and fuel subsidy policies are unchanged.

“Assuming fuel prices are unchanged in the first half of 2023 and gradually raised in the second half of the year, headline inflation could be capped at 3.5 per cent,” they added in a note on Friday.

UOB’s projection is for inflation to average 2.8 per cent in 2023, at the low end of the Finance Ministry’s estimated range of 2.8 per cent to 3.3 per cent. Although inflation has moderated, the central bank expects it to remain at “elevated levels” this year due to cost pressures.

UOB’s Goh and Loke agreed, but noted some “key wildcards” for the inflation outlook: volatile global commodity and non-commodity prices, domestic policy changes, the persistence of post-pandemic demand and currency movements.

Hong Chee Meng, the president of the Federation of Sundry Goods Merchants Association of Malaysia, expects prices of most sundry goods to continue rising this year, due to both external and domestic factors.

Global production was hit by China’s earlier Covid-zero policy, while Russia’s war in Ukraine caused supply chain disruptions, he said. “Locally, we are facing rising costs of logistics and labour shortage problems,” he told The Business Times.

For example, logistics costs have surged two- to three-fold since Malaysia reopened its border in April 2021. In the past few months, this has caused goods prices to increase by 7 per cent to 8 per cent.

But the return of China tourists will be the next catalyst for the retail industry, he said, anticipating rising demand for food and beverages, hotels, transportation and consumer goods.

Compared to other countries in South-east Asia, Malaysia had lower inflation in December than the Philippines (8.1 per cent), Thailand (5.9 per cent) and Indonesia (5.5 per cent). Its inflation was also lower than the eurozone (9.2 per cent) and the United States (6.5 per cent), as well as South Korea (5 per cent).