Malaysia’s inflation steady at 3.7% in February, driven by higher food, hospitality prices

[KUALA LUMPUR] Malaysia’s inflation rate held steady at 3.7 per cent in February, on the back of increasing costs of food and hospitality, said the Department of Statistics Malaysia (DOSM) on Friday (Mar 24).

The inflation rate was in line with forecasts by 19 economists polled by Reuters earlier.

On a monthly basis, the consumer price index increased 0.2 per cent from January to February. For the first two months of 2023, the inflation rate was 3.7 per cent, up from 2.3 per cent in the corresponding period last year.

DOSM chief statistician Mohd Uzir Mahidin said that price increases were driven by higher prices in restaurants and hotels (7.4 per cent in February, from 6.8 per cent in January), as well as dearer food and non-alcoholic beverages (7 per cent in February, from 6.7 per cent previously).

Prices in the education group (1.6 per cent in February, higher than the 1.3 per cent in January), as well as in housing, electricity, water, petrol and fuels (1.7 per cent in February, up from 1.5 per cent in the month before), also grew, but more slowly. Mohd Uzir noted, however, that the easing growth in the transport group (3.7 per cent in February, compared with 4 per cent in January) managed to offset Malaysia’s rise in inflation.

In February, prices rose for 452 out of 552 – or about 82 per cent – of the items in the index. Among these, the prices of 44 items went up by more than 10 per cent.

Core inflation, which excludes volatile items and those with government-administered prices, was unchanged at 3.9 per cent in February. It stayed above headline inflation for the fifth straight month, and surpassed the 2016 to 2022 long-term average level of 1.7 per cent for 13 months.

As the base effects from the Ukraine war-driven ride in global food and energy prices should fade in coming months, economists expect Malaysia’s headline inflation will decline.

In a report on Friday, UOB economists Julia Goh and Loke Siew Ting said the country’s inflation risks are capped by ongoing subsidies, existing price controls and stable global oil prices.

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Nevertheless, the stubborn core inflation remains a concern amid a positive domestic outlook. Goh and Loke expect Bank Negara may hike interest rates in May, pushing the overnight policy rate to 3 per cent in a bid to tame inflation.

Barclays senior regional economist Brian Tan shared the same view, but said he expects the rate hike to happen in July.

He said Malaysia’s economy remains relatively resilient, and forecast the core inflation to average at 2.9 per cent this year, slightly lower than 3 per cent in 2022.

Compared to other countries in the Asia-Pacific, Malaysia’s inflation in February was higher than Japan’s (3.1 per cent), but lower than the Philippines’ (8.6 per cent), Indonesia’s (5.5 per cent), South Korea’s (4.8 per cent) and Thailand’s (3.8 per cent).

Malaysia’s inflation was also lower than the eurozone’s (8.5 per cent), UK’s (10.4 per cent) and US’ (6 per cent).