Malaysia’s headline inflation was 3.4% yoy in June, higher than the 3.3% that we had pencilled in and the 3.2% that the market had in mind. The culprit remains the uptick in food prices, with the sub-index seeing a high print of 6.1% yoy. Within that, the surge in chicken prices presented the main push.
Despite a continuation of the subsidy policy by the government, the poultry prices increased by 17.2% yoy in June compared to 13.4% in May. Given how chicken comprises the largest bulk of meat consumed – 46.1% by the relevant CPI weight – its dearer cost hurts the most. It does not help that price of pork climbed by 14.6% yoy too, even if it is not as widely consumed.
Meanwhile, the ugly effects of the global commodity price upticks can be seen clearly in the increase in fuel price inflation, as well. Even though the RON95 petroleum continues to be subsidized, its unsubsidized brethren RON97 petroleum saw a considerable 80% surge in yoy terms to MYR4.77/lt from MYR2.67 in June last year, pushing up the headline inflation too.
Moreover, there are further signs that price upticks are now felt beyond just the food and fuel categories, as well. Core inflation came in at a relatively hefty 3.0% yoy in June, compared to 2.4% before, marking the highest print since March 2016. At the end of 2021, core inflation stood at just 1.1% yoy.
To be sure, viewed from a comparative lens regionally, Malaysia’s inflation prints remained relatively benign. As the chief statistician was eager to point out, its inflation is lower than peers such as Thailand and Indonesia.
Still, the continued uptick in food and fuel inflation, coupled with the relative surge in core inflation is likely to receive increasingly more acute attention from the authorities. In particular, even as Bank Negara Malaysia has already embarked on tightening since May, pushing up its Overnight Policy Rate by 50bps thus far, the case for further ratcheting up of rate is clearer still now.
Indeed, even as our baseline case remains just one more 25bps hike this year (in the next September meeting), there may be more impetus for another 25bps move (in the last MPC in November), should there be more surges in the price prints, especially the core reading, in the coming months.
Wellian Wiranto, Economist Global Treasury – Research & Strategy OCBC Bank
