Malaysia: Inflation could have peaked in August – UOB

Senior Economist Julia Goh and Economist Loke Siew Ting at UOB Group comment on the latest inflation figures in Malaysia.

Key Takeaways

“Consumer price index (CPI) increased for the fifth consecutive month by 4.7% y/y in Aug (Jul: +4.4%), coming in a tad lower than our estimate (4.8%) but matching Bloomberg consensus. It also marked the highest reading since Apr 2021, continuously lifted by costlier food & beverages, housing, utilities & other fuels, household equipment & appliances, recreation services & culture, and restaurants & hotels amid base effects.”

“We think that inflation may have peaked in this reporting month as the impact of price adjustments for various price-administered items and minimum wage hikes could have been fully reflected since May. However, the base effects will likely keep CPI growth above 4.0% for the rest of the year before decelerating towards the 2% level in 2023. This will bring full-year inflation to an average of 3.5% for 2022 (BNM est: 2.2%-3.2%, 2021: 2.5%) and 2.8% for 2023, barring any changes in domestic policy particularly the existing blanket fuel subsidies, electricity tariffs, and ceiling prices for staple food.”

“Notwithstanding forceful responses by most central banks to rein in inflation, we believe that BNM will tread more cautiously while monitoring the effects of cumulative 75bps rate hikes so far this year on the economy and inflation before deciding on the next move. Measures announced in the coming Budget 2023 particularly on subsidies could also steer the rate decision at the next monetary policy meeting on 2-3 Nov. We keep our view for BNM to hold policy rates at 2.50% for the rest of the year before resuming its rate hikes to 3.00% by mid-2023 should growth conditions hold up.”