Malaysia’s inflation rate eases to 4% in October, above economists’ forecast

MALAYSIA’S year-on-year inflation continued to ease in October, with the rise in the consumer price index (CPI) slowing to 4 per cent, lower than the previous month’s 4.5 per cent.

The latest numbers, released by the Department of Statistics Malaysia (DOSM) on Friday (Nov 25), are slightly higher than the 3.9 per cent forecast in a Reuters poll of 20 economists.

On a monthly basis, the CPI increased 0.2 per cent from September to October. For the first 10 months of 2022, the country’s inflation was 3.3 per cent, up from 2.3 per cent in the same period last year.

DOSM said that price increases slowed for housing, water, electricity, gas and other fuel items – 1.5 per cent as compared with 4 per cent in September. This, coupled with an absence of base effects due to the discontinuation of electricity discounts, were the reasons for October’s lower inflation rate.

Inflation was highest for food and non-alcoholic beverages, with prices rising 7.1 per cent, up from the 6.8 per cent rise in September.

Also seeing high inflation were restaurants and hotels, with prices up 6.8 per cent (against 6.9 per cent in September), and transport, where prices rose 5.2 per cent (marginally lower than 5.3 per cent in September).

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DOSM noted that in October, prices rose for 448 out of 552 items in the index, or 81 per cent.

Among these, prices of 64 items increased by more than 10 per cent.

“Prices of 58 items showed a decline and 46 items remained unchanged.

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Malaysia inflation eases to 4.5% in Sep, below economists’ forecasts

To a certain extent, the price of administered items has eased the inflation rate in October,” said DOSM.

Core inflation, which excludes volatile items and those with government-administered prices, was 4.1 per cent in October.

Compared to other countries in South-east Asia, inflation in Malaysia in October was lower than the Philippines (7.7 per cent), Thailand (6 per cent) and Indonesia (5.7 per cent).

It was also lower than the eurozone (10.7 per cent) and US (7.7 per cent) and South Korea (5.7 per cent).

Although Malaysia’s inflation rate has moderated for two straight months, economists expect its trajectory to continue to be driven by economic growth, supply chain disruptions and commodity price movements.

Barclays economist Brian Tan said the drop in daily average RON97 petrol prices to RM3.96 per litre, down from RM4.16 in September, helped to reduce transport inflation in October – but the reduction has been offset by rebounding food prices.

He noted that the drop in RON97 petrol prices in November has been marginal so far, with the price at RM3.95.

There will thus be “a more visible base effect” compared with November 2021, when RON97 prices rose to RM3.06 from RM2.84 the month before. He expects this to keep November’s headline inflation at 4.1 per cent.

The research firm maintained their full-year inflation forecasts at 3.4 per cent for 2022 and 2.8 per cent for 2023.

UOB senior economist Julia Goh and economist Loke Siew Ting said the year-to-date headline inflation suggests that their full-year forecast of 3.5 per cent remains plausible.

For 2023, they expect headline inflation to continue its downtrend and to average 2.8 per cent, assuming no changes in domestic policy – particularly fuel and electricity subsidies, and the price cap for staple food.

But they added that core inflation showed no signs of abating, with its year-to-date reading of 2.8 per cent almost hitting the upper bound of the central bank’s full-year average forecast of 3 per cent for 2022.

RHB Research economist Chin Yee Sian noted that the recent change of government regime may lead to potential changes in fiscal and monetary policies, which will affect the inflation rate.

Pakatan Harapan chairman Anwar Ibrahim was appointed as prime minister on Nov 24, and will table the country’s revised budget in January next year.

RHB Research maintained its headline CPI projection at 3.4 per cent for 2022, and expects inflation to range between 3 per cent and 3.5 per cent in 2023.