The latest inflation data released by the Department of Statistics noted that it has risen to 2% compared to April while core inflation remained stable at 1.9%. OCBC in its review said the Year-to-date headline inflation averages at 1.8% YoY, but nots that there will be some upside pressure on inflation in the coming months following higher retail diesel prices.
The house is maintaining its full year 2024 average headline inflation forecast of 2.5% YoY and expect Bank Negara Malaysia (BNM) to remain on hold in 2024.
Notably, the main drivers were utilities (3.2% versus 3.0%), transportation (0.9% YoY versus 0.8%), communication (0.4% YoY in May versus -2.5% in April), and education (1.5% versus 1.4%) inflation. These more than offset lower food (1.8% YoY versus 2.0%) and restaurants/hotels (3.2% versus 3.5%) inflation.
OCBC expects headline inflation to rise in the coming months and alludes to retail diesel prices wwhich were adjusted 55.8% higher implying an additional 0.1 percentage points (pp) to annual inflation. For June, the bank’s initial estimates suggest inflation will rise to 2.3% YoY and maintains its full year 2024 average headline inflation forecast of 2.5% YoY.
The bank notes that the base case remains for BNM to keep its policy rate unchanged at 3.00% for the rest of this year. The diesel subsidy rationalisation suggests that inflationary pressures will remain contained. BNM will, however, remain vigilant of the second-round impact of prices changes.
