Inflationary pressures could gain momentum in 3Q in the near term before tapering off as we enter 4Q22, CGS CIMB said in a note.
He said that the prices of chicken may peak in July-Aug 22 as the government has raised the price cap for chicken by 50 sen per kg and for eggs by 2 sen since 1 Jul 2022.
On the flipside, it said the government has banned chicken exports and removed the approved permit (AP) for chicken imports 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 Jul 22 vs. Jun 22.
Similarly, the removal of subsidies for bottled cooking oil since 1 Jul 2022 will contribute to higher prices of oil & fats components. However, the price of crude palm oil dropped by about 50% in late Jul 22 compared to its Apr 22 peak.
Malaysia’s Consumer Price Index (CPI) rose 0.6% mom and 3.4% yoy in Jun 22 (vs. 0.6% mom and 2.8% yoy in May 22), higher than our and market expectations. Meanwhile, CPI gained momentum at 0.6% mom from 0.4% prior, leading to a rise in the yoy growth at 3.0% from 2.4% in May 22.
Two components that drove Jun 22 CPI were food and transport. For food, fresh meat, especially chicken was the major culprit, rising by 13.5% yoy (3.0% mom), a record increase not seen since at least a decade ago. This was exacerbated by the increase in egg prices (13% yoy; May 22: 16.3%).
Meanwhile, the increase in the transport component was largely driven by the rise in fuel prices. Price of RON97 averaged at c.RM4.77 on Jun 22, compared to RM2.65 in Jun 21. Strong price increases were also seen in other components as well. In particular, the cost of airfare rose by 10.8% mom (May 22: 5.4%), food away from home (1.4% mom; May 22: 0.7%) and accommodation services (1.7% mom; May 22: 1.9%).
CGS CIMB said that the strong uptick in core inflation was driven by food as well as restaurant & hotels reflecting the strong domestic demand conditions for the month.
It said that another factor to support the continued rate normalisation cycle by Bank Negara Malaysia (BNM).
The stockbroking firm said that it expects BNM to hike the rate by 25bp during the MPC meeting on 8 Sep 2022, followed by two more hikes in 1H23.
