The latest inflation report by DOSM indicated that the headline inflation rate descended to +3.4%yoy, lower than market estimates of +3.6%yoy. Non-food inflation decelerated further to a 10-month low of +1.7%yoy while food inflation softened to +6.9%yoy.
Elevated global commodity prices, high food prices, and firm domestic demand were among the factors holding up inflation pressure in Malaysia. For instance, the core inflation rate remained sticky lingering above +3.5%yoy. On a sequential month basis, core prices still recorded growth of +0.2%mom. Research house MIDF opines the strong inflation trend in Malaysia is highly driven by strong consumer demand, while cost factors are slowing down. Services inflation remained above +4%yoy for 7-straight months. The job market has been improving where employment growth has been above +2%yoy for 18-straight months since Oct-21, while distributive trade sales continued to expand by a double-digit pace of +14.7%yoy in Feb-23.
MIDF noted a first contraction of fuel inflation as prices declined for the first time in 2 years by -0.9%yoy. This was in
tandem with the normalisation of commodity prices. The house believes the government to keep the current fuel subsidy
mechanism status quo at least for 2023. Hence, we foresee fuel inflation to stay on a deceleration path and reduce overall inflationary pressure. On the other hand, the non-fuel inflation rate moderated to a 6-month low at +7.1%yoy in the final month of 1QCY23.
Global food inflation fell to an almost 14-year low. Global food inflation as reported by FAO of UN shrank further by -21.9%yoy in Mar-23, the steepest decline since Aug-09. On a sequential monthly basis, the global food inflation contracted by -2.1%mom, marking the 12th straight month of negative growth. Among the components, prices of meat, dairy, cereals, and oils fell by -6.9%yoy (more than 2-year low), -12.2%yoy (more than a 4-year low), -19.9%yoy (more than 9-year low) and -48.6%yoy (a 14-year low), respectively. Global sugar inflation moderated from a 10-month high of +11.3%yoy in Feb-23 to +5.9%yoy in the following month. Malaysia’s food
Moving into 2023, supply-push factors are expected to ease, among others attributable to the appreciation of the Malaysian Ringgit, mild correction in global commodity prices and better supply chain flows. Judging from the re-tabled Budget 2023, MIDF believes the government will keep fuel subsidies, especially the RON95 status quo until the end of the year. We anticipate that any targeted-subsidy measures for RON95 and Diesel will be rolled out in 2024.
The main downside risks to Malaysia’s inflation are persistent high food inflation, heightened geopolitical conflict in EU, spike in commodity prices, weak Ringgit, and natural disaster impacts that could affect negatively the trajectory of food prices in Malaysia.
