MALAYSIA can experience a stronger inflation rate in the August-September period – potentially reaching close to 5% – before coming down in 4Q 2022 driven by low base effect and as most pandemic-related support expires.
That said, CGS-CIMB Research believes that price pressure is on the downside given producer prices showed a month-on-month (mom) contraction of -2.3% in July 2022 (June 22: -0.1%), hence likely reflecting easing cost pressure amid the decline in global commodity prices.
“This could translate into easing price pressure on consumers going forward,” opined chief economist Nazmi Idrus in an economic update. “On the issue over chicken prices, we expect cost of chicken to moderate due to (i) input costs such as corn and soybean decreasing; and (ii) government measures to cap prices stemmed any price increase.”
Malaysia’s headline inflation rose to 4.4% year-on-year (yoy) in July 2022 (June 2022: 3.4%) – the highest since April 2009 – largely due to higher food prices and low base effect.
Meanwhile, CGS-CIMB Research described as “sporadic” news flow over price increases involving Gardenia products which prices would rise by 7%-20% effective Sept 1 considering bread & bakery products only account for 1.2% of the consumer price index (CPI) basket.
“Overall, we maintain the 2022F CPI projection at 3.1% (2023F: 3.2%),” projected the research house. “We expect continued rate normalisation by Bank Negara Malaysia (BNM) with a 25 basis points (bps) hike during the MPC (Monetary Policy Committee) meeting on Sept 8 followed by two more hikes in 1H 2023.”
TA Securities Research also expects inflation rate to continue rising in August 2022, probably hovering about the same level as the current rate following the expectation of sustained food prices.
“Meantime, the rest of the CPI segments such as clothing & footwear, recreation services & culture, and restaurant & hotels, are also assumed to pick up slightly, affected by increasing demand,” suggested economists Shazma Juliana Abu Bakar and Farid Burhanuddin.
“However, headline inflation would be cushioned by an expectation of slightly slower growth in transportation costs. The retail fuel price averaged at RM2.873/litre in August 2022 which translates to lower annual growth of 24.3% yoy compared with 29.6% yoy increase in the previous month.”
With upward trajectory in annual inflation rate plus stronger economic growth in 2Q 2022 and this year, Maybank IB Research expects BNM to raise OPR further by +50bps to 2.75% by end-2022 (notably 25bps hike each of the Sept 7-8 and Nov 2-3 MPC meeting).
“We also expect another +25bps hike early next year to bring OPR back to the pre-COVID-19 level of 3.00% by end-1Q 2023,” added economist Zamros Dzulkafli. – Aug 30, 2022
