MIDF Research reported today (June 25) that Malaysia’s headline inflation rate reached +2.0% year-on-year in May-24, marking the highest level since September 2023 and slightly exceeding market projections of +1.9% year-on-year. The uptick was primarily driven by a notable increase in non-food inflation, which rose by +2.0% year-on-year, the fastest pace in 15 months. This acceleration was attributed to rising utility costs and a rebound in information and communication technology (ICT) expenses.
Expectations are for a gradual uptick in inflationary pressures across Peninsular Malaysia in the second half of 2024, following the implementation of targeted subsidies for diesel in June-24. MIDF anticipates that the direct and indirect impacts of these subsidies will become more apparent in the coming months, potentially influencing overall price levels in the region.
MIDF forecasts the average headline inflation rate for 2024 to be around +2.7%. This projection considers the phased implementation of targeted fuel subsidies and expectations of moderating food price growth throughout the year. The firm notes that the government may require additional time to optimize subsidy distributions and adjust fuel prices, especially concerning RON95, with expectations for targeted subsidies to commence in the fourth quarter of 2024.
In May-24, Malaysia’s consumer price index (CPI) indicated a monthly increase of +0.3% and a year-on-year rise of +2.0%. Food and beverage prices, which constitute a significant portion of the CPI basket, experienced a modest increase, with food prices at home rising marginally by +0.5% year-on-year, while food away from home saw a higher increase of +3.4% year-on-year.
The Producer Price Index (PPI) in Malaysia rose to +1.9% year-on-year in April-24, marking an increase for the third consecutive month and the fastest rise since December 2022. This growth was driven by higher costs in the manufacturing sector, which saw input costs increase by +0.8% year-on-year, and the mining sector, which surged by +10.0% year-on-year, the highest in nearly two years.
Looking ahead, MIDF projects that inflationary pressures will continue to be influenced by various factors including the rationalization of diesel subsidies, adjustments in utility charges, and changes in the Sales and Services Tax (SST) rates. These developments are expected to impact businesses across different sectors, influencing their operational costs and potentially affecting consumer prices.
MIDF suggests that investors monitor these inflation trends closely as they evaluate investment opportunities in sectors sensitive to price changes, such as utilities, manufacturing, and consumer goods. The forecasted average inflation rate of +2.7% for 2024 underscores the importance of strategic investment decisions amid evolving economic conditions influenced by domestic policy changes and global economic trends.
