Malaysia’s Consumer Price Index (CPI) inflation softened from 2.0% yoy in Jul 2024 to 1.9% in Aug 2024. The headline figure was in line with expectations says CGS though it was lower than Bloomberg consensus’. Core inflation remained at 1.9% yoy for the fifth consecutive month, reflecting sustained demand after stripping off the volatile items of fresh food and goods controlled by the government. The moderation in price inflation was mainly attributed to slower yoy growth in utilities costs at 3.1% in Aug 2024 (Jul 2024: +3.2%) and muted growth in food costs. On contrary, Aug 2024 transport inflation increased to 1.3% yoy (+1.2% in Jul 2024), amid higher average price of RON97 and diesel vs. Aug 2023.
Robust domestic tourism to support prices ahead
Headline inflation moderated thus far this year (8M24: 1.8% vs. 8M23: 2.9%) as the high base effect wears off, together with some normalisation in commodity prices. The government’s active role in controlling prices seem to be bearing fruit, despite robust macro indicators from the private consumption side which could pressure prices. That said, factors such as Employees’ Provident Fund (EPF) Flexi account withdrawals, strong labour market, and improvement in external demand may continue to support prices ahead, in our view. Furthermore, findings of a Department of Statistics survey on domestic tourism in 2Q24 highlighted a surge in visitor numbers and spending on both yoy and qoq basis.
Significant contributions include spending on food and beverages, automotive fuel and accommodation. We think this trend will sustain for 2H24F; below are potential upside risks to inflation to watch: The costs of travel-related goods and services still facing pressure, particularly expenses in restaurants & cafes, accommodation services and passenger transport by air. A price change for RON95 may be imminent and it could occur during Budget 2025 announcement in Oct 2024, despite the diesel prices changes which had a benign impact on transport costs. The economic price of RON95 fuel has decreased due to the decline in Brent oil price and the strengthening of the ringgit.
Escalation of geopolitical tensions in the Middle East could interrupt global supply chain, resulting in increased commodity prices ahead.CGS has lowered CPI forecast but RON95 uncertainties remain
At current pace of inflation growth (8M24: 1.8% yoy), the 2024F CPI forecast of 2.6% (2025F: 3.3%) appears on the high side. However, uncertainties remain, especially whether the government will still attempt to revise the RON95 fuel subsidy this year. Assuming no changes, we estimate 2024F CPI could come in at 1.8% yoy (2025F: 1.6%). However, if RON95 adjustment happens in Oct 2024, towards prevailing Brent market prices (from RM2.05/litre to RM2.55/litre), the house estimates a 100bp increase in Oct 2024F CPI growth. That could bring the 2024F CPI to 2.2% yoy (2025F: 2.4%). Despite this uncertainty, CGS said it chose to err on the higher side, arguing that with the current low inflation trend and robust domestic economic growth, there are space for further subsidy reforms by the government.
