DOSM released the latest headline figure, with the inflation easing to 2.8% YoY in May from 3.3% in April while core inflation eased more modestly to 3.5% YoY from 3.6% in April.
OCBC said it continues to expect headline inflation to average 2.9% YoY in 2023 with core inflation averages 3.0% for the year. Moderating inflation along with slowing growth will keep Bank Negara Malaysia (BNM) on hold, adding that BNM will, however, maintain a clear hawkish bias.
As BT reported, the main drivers were food, transportation and communication. This more than offset higher utilities inflation. Core inflation, however, remained sticky easing only slightly to 3.5% YoY from 3.6% in April. For full year 2023, OCBC says it expects headline inflation to ease to 2.9% YoY from 3.4% in 2022 while core inflation remains stable at 3.0%. This is within BNM’s 2.8-3.8% 2023 forecast range for headline and core inflation but underscores the stickiness of core inflation relative to headline inflation. Moreover, the Bank assess that the risks to the inflation outlook remain to the upside from adjustments to subsidised fuel and electricity prices, the ongoing El Nino phenomenon and increased geopolitical tensions.
From a monetary policy perspective, moderating inflation pressures taken together with slowing growth reduces the need for further tightening by BNM, in its view. As such, OCBC expects BNM to remain on hold at its 6 July and indeed, for the rest of 2023. BNM’s tone it said will, however, remain hawkish considering greater external volatilities from a more hawkish US Fed and persistent MYR depreciation pressures.
