Consumer Prices To Stay Soft In 1H24F, CGS International Says

Inflation growth buffered by moderation in food costs Malaysia’s Consumer Price Index (CPI) rose 1.8% yoy in Mar 2024.

CGS International (CGS), in its Economics Update today (Apr 26) said the headline figure was below CGS’s and Bloomberg’s consensus forecasts.

Meanwhile, core CPI growth moderated to 1.7% yoy in Mar 2024 (+0.2% mom); this is the first time since Oct 2022 that core inflation had come in below headline inflation.

The sustained low inflation in Mar 2024 was mainly attributed to slower growth in food costs (1.7% yoy in Mar 2024 vs. 1.9% in Feb 2024) with yoy inflation in subcomponent food at home moderating further to 0.3% while food away from home sustained at 3.5%.

CGS thinks the expansion of Payung Rahmah Madani initiatives such as Rahmah Ramadan Bazaar programme, contributed to suppressed food prices during Ramadan (10 Mar-9 Apr). This was in tandem with the Ihsan Rahmah programme which provides discounts up to 30% on purchase of daily necessities.

Price pressure likely to build up higher in 2H24F

Mar 2024 data marks the 16th month of continued moderation in the percentage of yoy inflation. For the next three months, CGS thinks prices will remain soft based on:

1. The 8% service tax implemented in Mar 2024 has thus far seem to show minimal impact, based on the headline breakdown for the month. There could be a lagged impact whereby an increase could be reflected in Apr CPI. In CGS’s estimate, the increase in service tax will impact around 7% of the total CPI items and hence will only raise the overall CPI by +10bp.

2. CGS expects CPI growth to be limited in Apr 2024F given the price control scheme for Eid from 5-19 Apr alongside the ongoing Payung Rahmah Madani initiative.

3. The High Value Goods Tax (HVGT) which was to be implemented on 1 May 2024 has been postponed, as announced by the Deputy Finance Minister. To recap, the government has indicated that the HVGT would range 5-10% and generate revenue of RM700m.

CGS thinks this tax will have limited impact on CPI growth. Given the government’s intention of lowering its subsidy burden, we believe Malaysia’s fuel subsidy will be revised as early as May 2024F.

Changes here may seep into CPI headline gradually, depending on the magnitude of the subsidy rationalisation. Overall, CGS maintains their 2024F inflation forecast at 3.2% with upside risks, especially if the government decides to implement any targeted subsidy adjustments in the near term.

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