Food Inflation To Remain Challenging Due To Weak MYR And Global Headwinds

Malaysia reposted a steady inflation level with August remaining at 2% a 2-year low, according to the Department of Statistics’ latest figure.

MIDF says the inflation rate matched with market consensus, the non-food inflation rate inched up slightly to +1.0%yoy while food inflation softened to a 16-month low at +4.1%yoy. The moderation of inflation among others was due to high base effects. The core inflation rate moderated below +3.0% level at +2.5% yoy but it was still above the pre-pandemic average of +1.7%. Average 8MCY23 headline inflation was +2.9% (2022: +3.4%) and the core inflation rate was +3.4% (2022: +3.0%).

On a sequential month basis, headline and core inflation remained firm registering positive gains of +0.2%mom. The moderation of inflationary pressure is a positive signal especially for domestic demand to stay on the expansionary path in 2HCY23. However, persistent high domestic food inflation remains as downside risk factor, especially with shortages of supply may lead to a potential spike in food prices

As of 8MCY23, average food inflation registered at +5.7%yoy, equivalent to the previous year’s +5.7%. MIDF estimates food inflation to remain at a range of +5.5~6.0% in 2HCY23 due to an externally challenging environment, especially for global agriculture output. Plus, prolonged depreciated MYR among others will lead to higher imported inflation particularly via food prices as Malaysia is a net importer of most food products. As for non-food inflation, the house is confident the government will keep retail fuel prices status quo at least until the end of this year. Non-food inflation is expected to average at +1.5%
(8MCY23: +1.5%yoy). Considering both CPI components, MIDF foresees Malaysia’s headline inflation rate to average
at +3.0% for 2023.

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