Data Indicates Headline And Core Inflation Rate Maintained, Says MIBB

Malaysians may see a stable rise in inflation rate moving forward in the foreseeable future, based on the statistics that are coming in.

According to the Malaysian Investment Bank Bhd (MIBB) in the recent Malaysia CPI report, Inflation rate forecasts for 2023 forecast were maintained for now, with monthly inflation expected to drift lower in the second half of 2023.

Headline inflation rate stayed at +3.7% year-on-year in Feb 2023 (Jan 2023: +3.7% year-on-year; first two months of 2023: +3.7%). Core inflation was also unchanged at +3.9% year-on-year (Jan 2023: +3.9% year-on-year).

“Maintain our 2023 inflation rate forecast at +3.0%, mainly on base effect and as fuel subsidy stays for the time being as per the re-tabled Budget 2023, although inflation risk remains biased to the upside amid fluid price subsidy/control policy,” said MIBB.

Headline inflation rate stays at +3.7% year-on-year in Feb 2023 (Jan 2023: +3.7% year-on-year; 2022: +3.3%), the third consecutive month of sub-4% print.

But food and non-alcoholic beverages inflation accelerated to +7.0% year-on-year (Jan 2023: +6.7% year-on-year) vs the much slower non-food inflation (Feb 2023: +2.0% year-on-year; Jan 2023: +2.1% year-on-year). Transport inflation eased to +3.7% year-on-year (Jan 2023: +4.0% year-on-year; 2022: +4.7%). month-over-month, headline consumer price index was up by +0.2% (Jan 2023: +0.2%).

Headline inflation rate ex-fuel prices rose marginally to +4.0% year-on-year (Jan 2023: +3.9% year-on-year; 2022: +3.2%) while core inflation remained unchanged at +3.9% year-on-year (Jan 2023: +3.9% year-on-year; 2022: +3.0%).

Services inflation stayed above-4% year-on-year since Oct 2022 (Feb 2023: +4.2% year-on-year; Jan 2023: +4.2% year-on-year; 2022: +3.0%) amid lingering pent up discretionary spending and services demand from economic opening plus cost pressures e.g. restaurants and hotels; recreation services and culture; furniture, household equipment and routine household maintenance.

“We maintain our 2023 inflation forecasts at +3.0% for now, as we expect monthly inflation rate to go sub-3% year-on-year in second half 2023 mainly on base effect, and as Budget 2023 re-tabling indicates fuel subsidy stays for the time being,” said MIBB.

However, inflation risk remains biased to the upside amid the still fluid policy on price subsidies and controls, as per the implementation of targeted electricity subsidy and the plan to float chicken and eggs prices in July 2023.

Amid headline inflation “stickily” easing from the peak in Aug 2022 and as core inflation being higher than headline since Oct 2022, BNM again kept overnight policy rate unchanged at 2.75% at Mar 2023 MPC after the pause in Jan 2023 MPC, (see our note “Still on “pause” mode”).

But the latest monetary policy statement retains the words “further normalization”, implying current pause does not mean the end of overnight policy rate hike cycle.

“The monetary policy statement also added that it is keeping an eye on cost factors – including those arising from financial market development, which we think is largely about Ringgit – that could affect inflation outlook.

We expect another +25 base points hike to bring overnight policy rate back to pre-COVID 19 level of 3.00%,” said MIBB.

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