Malaysia: Inflation loses further traction in April – UOB

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

Key Takeaways

“Headline inflation recorded a small blip, as it eased to 3.3% y/y in Apr (from +3.4% in Mar), marking an eighth straight month of deceleration and the lowest level since May 2022. The outturn matched our estimate and Bloomberg consensus. It was largely thanks to softer food and services (i.e. restaurants & hotels, education, healthcare, and packaged tours) price inflation amid diminishing base effects and the implementation of Festive Season Maximum Price Control Scheme (SHMMP) for Hari Raya Aidilfitri from 14-30 Apr.”

“Apr’s inflation reading further affirms our view that the disinflationary process will persist at a moderate pace throughout the remaining months of the year. In recent weeks, the government also hinted that the prospects of implementing a targeted subsidy mechanism remain intact but the timeline of execution (particularly for fuels) may be pushed to next year instead of in 2H23. With that, we maintain our 2023 full-year inflation forecast at 2.8% (BNM est: 2.8%-3.8%, 2022: 3.3%), while not factoring in any impact of government’s gradual subsidy rationalization.”

“Manageable inflation expectations and slowing economic growth momentum will continue to give central bank breathing room to maneuver its monetary policy stance as we enter 2H23. Core inflation extended its downtrend and eased at a faster pace than headline inflation in Apr, reflecting the lagged effects of past interest rate hikes and cautious consumer sentiment in light of heightened uncertainty surrounding the global and domestic economy. The existing price controls and fuel subsidies are also expected to further contain the extent of upward pressures to inflation in the near term. Recognizing these developments and peaking of global interest rates, we continue to expect no further adjustment in the Overnight Policy Rate (OPR, current: 3.00%) for the rest of the year.”