Malaysia’s Consumer Price Index (CPI) rose 0.5% mom (Jan 24: +0.2% mom) and 1.8% yoy (Feb 24: +1.5%), higher than CGS’s and Bloomberg expectations.
CGS International’s (CGS) Economics Note today (Mar 26) said Feb 24 headline CPI was driven by the gains in the energy and transport components, but cushioned by softening in the food component.
Water tariff hike reflected in CPI, but electricity was not In Feb
Transport prices rose higher to 1.2% yoy (vs. Jan 24: +0.7% yoy) likely driven by the higher fuel prices, and increased travel in the holiday season. Compared to Feb 23, the average price of unleaded petrol (RON97) increased from RM3.35 to RM3.47 per litre.
For food, prices of chicken declined by 0.7% yoy (vs. +0.8% yoy in Jan), and pork by 5.8% yoy (Jan 24: 8.6%).
CGS thinks food prices could face upsides in the coming months due to Ramadan and the Eid holidays.
However, some of the cost pressures will be tempered by the festive season maximum price control scheme.
As expected, the cost of water supply & miscellaneous services relating to the dwelling subgroup rose (Feb 24: 29.7% yoy vs. Jan 24: 9.3%). The increase in this subgroup was due to readjustment of water tariffs for the domestic category in Peninsular Malaysia and the Federal Territory of Labuan beginning 1 Feb 24, with water bills rising by 28.8% in Feb 24, from 2.1% in Jan 24.
Meanwhile, the removal of electricity bills for households in Jan 24 showed no impact. CGS previously anticipated a potential lagged impact, however, changes in index numbers on this component seems to be muted.
Diesel price adjustments could feed into CPI
As part of the subsidy rationalisation campaign, the next in line would be diesel price recalibration.
As trial projects for the diesel fleet card, which commenced in Feb 24, are showing progress, CGS thinks the likelihood of diesel price subsidy to be implemented in the next quarter is high (possibly in Apr or May 24).
That said, CGS thinks adjustments to diesel prices are likely to occur in tranches (i.e. 3 or 4 adjustments to diesel prices by 20-30 sen each).
This is in order to minimise the impact to the price of goods and ensure the diesel fleet card mechanism can continually be improved (ensure minimal exclusion).
With this risk priced in, CGS maintain our 2024F inflation forecast at 3.2% yoy.
CPI basket adjusted, sees higher share of core CPI
The Department of Statistics Malaysia (DOSM) also took the opportunity to revise the CPI basket weight. According to DOSM, the revision still uses 2010 as a base year, but with adjustments to the weights following the result from the Household Expenditure Survey of 2022.
This means that the indices of the main CPI components are unchanged from previously, in contrast to introducing a new index as practiced in the past.
Few key points are:
A major part of the adjustment is the creation of a new category, “financial services”, which was clustered under “miscellaneous” previously; and
Headline CPI components seeing a rise in weights are food, furnishing & household, health, communications, and restaurant & hotels.
Meanwhile, lower weights are seen in alcohol & tobacco, clothing, housing & utilities, transport, as well as recreation & culture.
CGS said, of interest, the share of categories in core inflation rises to almost 77%, compared to 73.7% previously.
