Has inflation in Malaysia peaked or it will remain north bound?
MALAYSIANS should brace for higher living cost with prices of food and other staple/necessities hitting the most expensive level since April 2009.
TA Securities Research expects Malaysia’s inflation rate to cross 4% level for July as there have been no signs of inflation peaking yet.
“This will be underpinned by higher food prices due to subsidy rationalisation in July,” opined economists Shazma Juliana Abu Bakar and Farid Burhanuddin in an economic update.
“The Government decided the price of chicken in the market will not be floated and has set a new retail ceiling price for standard chicken from RM8.90 to RM9.40/kg and the price of chicken eggs at 45 sen each (grade A), grade B (43 sen each) and grade C (41 sen each).”
Nonetheless, TA Securities Research expects headline inflation to be cushioned by an expectation of slower growth in transportation costs. The retail fuel price has so far averaged at RM2.98 per litre in July which translates to a lower annual growth of 29.6% year-on-year (yoy) vs 31% in the previous month. On a month-on-month (mom) basis, the retail fuel price declined slightly by 0.1%.
Driven by food (chicken was a major culprit) and transport (rise in fuel price especially RON97), Malaysia’s Consumer Price Index (CPI) rose 0.6% mom and 3.4% yoy in June (vs 0.6% mom and 2.8% yoy in May).
In tandem, core inflation (excluding volatile items of fresh food and goods controlled by the Government) also nudged up by 3% yoy in June, the fastest gain since February 2016 (3.9% yoy).
Given the ongoing domestic recovery and increasing inflation outlook, TA Securities Research reckoned that there is room for Bank Negara Malaysia (BNM) to raise its overnight policy rate (OPR) by another 25 basis points (bps) during its September’s meeting, hence bringing the rate to 2.5%. “We keep our average CPI forecast at 3.1% for 2022,” it added.
Moving forward, CGS-CIMB Research expects inflation to peak in 3Q 2022 as commodity prices have fallen.
“Inflationary pressures on a mom basis could gain momentum in the near term before tapering off as we enter 4Q 2022,” projected economist Nazmi Idrus. “Prices of chicken may peak in July-August as the Government has raised the price cap for chicken by 50 sen/kg and eggs by 2 sen (each) since July 1.”
On the flipside, the Government has banned chicken exports and removed the approved permit (AP) for chicken imports in order to increase supply in the local market and stabilise prices.
Another important factor is that feed costs are likely to moderate, given that prices of corn and soybean have fallen significantly by about 20%-25% in late July vs June, according to CGS-CIMB Research.
“Similarly, the removal of subsidies for bottled cooking oil since July 1 will contribute to higher prices of oil & fats component. However, the price of crude palm oil has dropped by about 50% in late July compared to its April 2022 peak,” observed the research house.
Nevertheless, the strong uptick in core inflation that was driven by food, as well as restaurant & hotels, reflect strong domestic demand conditions which could only add to the central bank’s hawkish sentiment.
“We see this as another factor to support the continued rate normalisation cycle by BNM,” CGS-CIMB Research pointed out. “We expect BNM to hike the rate by 25bps during the MPC meeting on Sept 8, followed by two more hikes in 1H 2023.”
Sourcr: Focus Malaysia
