In Apr, Malaysia’s CPI rose 0.2% mom and 1.8% yoy, lower than consensus’ expectations. Meanwhile for core CPI, slight gains were recorded yoy growth to 1.9% (Mar: +1.7%).
CGS International, in its Economics Note today (May 27), said April headline CPI growth was dragged lower by transport but sustained by stronger pressures from the food component. For food, the subcomponent food at home rose marginally by 0.4% yoy (-0.2% mom), buffered by the implementation of the maximum price scheme for festive period for 15 days in the month of Apr.
Meanwhile, the subcomponent of food away home rose to 4.0% yoy (Mar: 3.5% yoy), which CGS thinks could be due to increase of tourism, which ties with the increase of restaurant and accommodation services (3.5% yoy). The transport component moderated to 0.8% yoy and -0.1% mom on lower air transport prices (-11.9% yoy), with holiday season travel being closely regulated by the government.
CGS said, there are several developments happening in the near term that warrant close attention:
Earlier this week, the government announced a plan to revise diesel prices as part of its subsidy rationalisation campaign. According to the government, this policy will be rolled out in Peninsular Malaysia, while Sabah and Sarawak will be exempted. This is aligned with CGS’s thesis in the thematic Diesel hike impact muted, if well executed.
To recap, estimate an adjustment to diesel reform could increase both 2024 and 2025 CPI growth by 10bp each as households’ spend on diesel is extremely small — making up just 0.2% of the CPI basket in 2024.
However, CGS noted that the risk of profiteering could add pressure to inflation, as businesses may take the opportunity to raise prices.
Although few details were available to date, a RON95 subsidy removal is expected to take place in 2H24F. This could bring a major impact to consumers and businesses, depending on the mechanism of price adjustment.
A review of the electricity tariff (imbalance cost pass-through mechanism, ICPT) is expected to be announced by Jul 24. A check on market prices of gas and coal are showing roughly stable price trends, which puts the risk of a higher tariff adjustment low, in CGS’s view.
The high-value goods tax (HVGT), which was due on 1 May 2024, is expected to be tabled in the next Parliament session (in Jun/Jul).
A spike in vegetable prices (due to low supply) was recorded in Apr, which may corroborate with what was anticipated by the Federation of Vegetable Farmers Association earlier attributed to foreign labour shortages. The price hike could potentially be prolonged by the Southwest Monsoon that starts from May to Sep.
CGS also saw ongoing price pressures for tourism-related components, particularly hotel accommodation, likely reflecting the rising number of tourists.
Overall, CGS thinks that CPI growth on a yoy basis may have bottomed out for this year and is likely to trend higher in 2H24F. That said, the mild impact on headline CPI coming from the increase in service tax charges in Mar 24 and revision of water and electricity tariffs in Jan 24 indicate that CGS was excessively bullish on the price trends.
As such, CGS revised lower their 2024F CPI growth to 2.6% yoy (vs. 3.2% previously; CPI is 1.7% yoy YTD). Trend-wise, CGS still think prices will begin to elevate from 2H24F onwards towards 2025F.
