Although Services tax were adjusted to 6%-8% from 6% on 1 Mar 2024, but headline inflation stayed at +1.8% YoY (Feb 2024: +1.8% YoY; MIBG Mar 2024E: +2.0% YoY; consensus: +2.0% YoY).
Maybank Investment Bank (Maybank IB) cited that core inflation eased to +1.7% YoY (Feb 2024: +1.8% YoY; 1Q 2024: +1.8% YoY; 2023: +3.0%). With 1Q 2024 inflation of +1.7% YoY, we cut full-year 2024 forecast to +2.4% from +3.0% previously (2023: +2.5%), which still implies upside risk to monthly inflation ahead, mainly from the planned domestic fuel subsidy rationalisation.
Sub-2% monthly headline and core inflation rates
Headline inflation rate remained at +1.8% YoY in Mar 2024 (Feb 2024: +1.8% YoY; 1Q 2024: +1.7% YoY; 2023: +2.5%). Housing, Water, Electricity, Gas & Other Fuels (HWEGOF) inflation rose to +3.0% YoY (Feb 2024: +2.7% YoY; 1Q 2024: +2.6% YoY; 2023: +1.7%), mainly attributed to higher water tariff starting 1 Feb 2024.
There was a small uptick in Transport inflation to +1.3% YoY (Feb 2024: +1.2% YoY).
Meanwhile, Food & Beverages eased (F&B – Mar 2024: +1.7% YoY; Feb 2024: +1.9% YoY) as other CPI components were broadly steady. Non-food inflation was up to +1.7% YoY (Feb 2024: +1.6% YoY). MoM, headline CPI rose +0.1% (Feb 2024: +0.5%).
While inflation rate ex-fuel prices edged up a little to +1.8% YoY (Feb 2024: +1.7% YoY; 1Q 2024: +1.7% YoY; 2023: +2.8%), core inflation eased to +1.7% YoY (Feb 2024: +1.8% YoY; 1Q 2024: +1.8% YoY; 2023: +3.0%).
At the same time, despite the broadening of services tax rate from 6% to 6%-8% range effective 1 Mar 2024, the impact on Services inflation was muted (Mar 2024: +2.1% YoY; Feb 2024: +2.0% YoY; 1Q 2024: +2.0% YoY) as the tax rate on F&B and telecommunication services remains at 6%, and amid dissipating post-pandemic pent-up discretionary spending from economic opening e.g. restaurants & accommodation services; recreation sports & culture; furniture, household equipment & routine household maintenance.
Maybank IB cuts 2024 inflation rate forecast to +2.4% from +3.0% previously
With sub-2% 1Q 2024 headline inflation of +1.7% YoY, we cut the full-year 2024 inflation forecast to +2.4% from +3.0% previously (2023: +2.5%), which still point to upside risk to monthly inflation ahead, mainly from the planned implementation of targeted fuel (diesel & RON95 petrol) subsidy.
Maybank IB is also mindful of the likely impact of Budget 2024 subsidy and tax measures. The impact of the broadening the service tax base (to include logistics, maintenance & repair, non-financial brokerage & underwriting, and karaoke) and the tax rate (from 6% to 6%-8%) starting 1 Mar 2024 was muted.
In addition, chicken subsidies were discontinued from 1 Nov 2023, and from 1 Jan 2024, excise duty for sugar-sweetened beverages was raised from MYR0.40/l to MYR0.50/l, excise duty was imposed on chewable tobacco products at 5% + MYR27/kg as well as reduction in entertainment duty (FT-KL, Labuan and Putrajaya) from 25% to 10%, 5% and 0% respectively, according to categories.
Nevertheless, the upward revision in water tariff had caused the “water supply” component of CPI to jump +31.4% YoY and +2.1% MoM in Mar 2024 (Feb 2024: +28.7% YoY & 26.1% MoM).
