Slower price growth buffered by lower food prices in Malaysia’s Jan 24 Consumer Price Index (CPI) rose 0.2% mom and 1.5% yoy (similar to Dec 23), lower than CSCIMB’s and Bloomberg expectations.
Core CPI gained 0.3% mom, lifting yoy growth to 1.8% (Dec 23: +1.9%)
CGSCIMB, in its Economics Note today (Feb 26) said the headline CPI was driven by gains in the transport and energy components, while cushioned by softening in the food component.
Transport prices rose higher to 0.7% yoy (vs Dec 23: 0.3% yoy) driven by the operation of personal transport equipment, which saw a rise of 1.2% (Dec 23: 0.8%).
The increase corresponded with the rise in the average cost of unleaded gasoline (RON97) from RM3.35 per litre in Jan 23 to RM3.47 per litre in Jan 24.
In terms of food prices, the subcategory of food away from home decreased to 3.1% in Jan 24, from 3.4% in Dec 23, as the majority of the food items in the category grew more slowly during the month.
Food at home subcategory moderated to 1.1% yoy in Jan 24, vs. 1.3% in Dec 23, although interestingly, in the meat subgroup, Jan 24 prices of chicken rose 0.8% yoy (vs. -1.4% yoy in Dec 23), while vegetables prices rose by 2.2% yoy in Jan 24, vs. 0.8% yoy in Dec 23.
CGSCIMB thinks the higher prices could be due to the lapse of the price control scheme involving 14 items after the Christmas period in Dec 23.
Electricity price hike seemingly not reflected in CPI
As part of its shift to targeted subsidies, the government removed the 2 sen rebate on electricity bills for households that use between 601 and 1,500 kWh of electricity monthly on 1 Jan 24.
However, looking at the breakdown for the electricity subcomponent, changes in index numbers on a % mom basis between Dec 23 and Jan 24 were muted. T
CGSCIMB said two factors could explain this peculiarity: Firstly, there could be a lagged impact, whereby an increase could be reflected in the following month (Feb 24), as cost is incurred by the consumer upon settling the bill.
Secondly, the class of consumers impacted, and quantum of the change, could be too miniscule to be reflected in the CPI data.
The Energy Commission said that the revision would not affect 99% (or 8.2m) of domestic users. We also note that in the last electricity bill revision in Jun 23 (which saw an increase from a 2 sen rebate to a 10 sen surcharge for users above 1,501 kWh), no impact was seen on the electricity index in any of the subsequent months.
Water revision is next, CPI has potential upside
Despite signs of moderation in prices, the inflation outlook is still very vulnerable to shifts in domestic price controls and subsidy policies, as well as fluctuations in the price of commodities globally.
In Feb 24, CGSCIMB could see some impact on the utility index, particularly water supply, from the upward revision of water tariffs for Peninsular Malaysia at an average of 22 sen per cubic metre. That said, the weight of the index in the CPI basket is small at 0.9%, thus it might not affect overall CPI in any significant way.
Also, in the near term, attention should be paid to potential changes to diesel prices, given the possible rollout of the fleet card mechanism which is currently under a trial run.
In summary, CGSCIMB anticipates that inflation in 2024F would rise gradually at an average of 3.2% yoy, taking into account steps that the government has already stated, such as raising the service tax, imposing a luxury tax, taxing low-value items, as well as fuel subsidy rationalisation.
