Malaysia: Inflation surprised to the downside in July – UOB

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting review the latest inflation figures in Malaysia.

Key Takeaways

Headline inflation decelerated for an 11th straight month to 2.0% y/y in Jul (from +2.4% in Jun), marking the lowest level since Aug 2021. The outturn was close to ours and Bloomberg consensus (2.1%). This came on the back of a persistent slowdown in price gains of food, transport, and selected services (i.e. restaurants & hotel, communication, and recreation services & culture) amid base effects and continued government subsidies during the month.

We expect inflation to hover at the edge of 2.0% in the remaining months of the year, leading to an average inflation rate of 2.8% for the entire year of 2023 (BNM est: 2.8%-3.8%, 2022: 3.3%). Our view takes into consideration the government’s pledge to maintain most of its subsidies for 2H23, an absence of global supply shocks particularly energy and essential food items, as well as in-house expectations for the currency. Easing core CPI growth and services inflation further imply a continuation of disinflation trend in the coming months.