Malaysia’s Consumer Price Index (CPI) reached a 10-month high in May, surging to 2.0% year-on-year (YoY), exceeding both house forecasts and market consensus of 1.9%. This uptick was partly driven by higher housing costs, a resurgence in food prices, and a notable increase in communication expenses, per a report by Kenanga Investment Bank (Kenanga).
On a month-on-month (MoM) basis, headline inflation doubled to 0.30% in May, up from 0.15% in April, primarily due to significant increases in food (0.26%) and housing prices (0.62%). Core inflation held steady at 1.9% YoY, reflecting a high base effect, but rose by 0.4% MoM, marking the highest increase in 16 months, driven by notable rises in housing and communication costs.
Despite a marginal MoM decline in the transport component, all other subcomponents witnessed broad-based increases. Food and non-alcoholic beverages eased slightly to 1.8% YoY, with food prices accelerating by 0.3% MoM, driven by increases in meat and vegetable prices. Housing, water, electricity, gas, and other fuels increased by 3.2% YoY, driven by rising rental costs and higher water supply expenses due to tariff adjustments in Perak. Communication costs rebounded to a 44-month high of 0.4% YoY, driven by increased subscription costs for audio-visual content and streaming services. Transport costs increased marginally by 0.9% YoY but decreased for the third consecutive month on a MoM basis.
Internationally, there are mixed inflationary trends among advanced economies, with the US slowing marginally to 3.3% YoY, the UK returning to its 2.0% target, and Japan accelerating to 2.8% YoY.
Looking ahead, Kenanga maintains its 2024 headline CPI forecast at 2.7%, anticipating the rationalisation of RON95 subsidies in 4Q24. Despite potential external inflationary risks, including geopolitical tensions and rising commodity costs, Malaysia’s inflation is expected to remain manageable. Kenanga expects Bank Negara Malaysia to maintain the overnight policy rate (OPR) at 3.00% until the end of 2025, supported by stable prices and a positive growth outlook.
While Malaysia’s CPI reached a 10-month high in May, driven by housing, food, and communication costs, Kenanga suggests that the inflationary pressures remain under control. Investors are encouraged to monitor the impact of upcoming subsidy rationalisation and tariff adjustments, which could influence inflation trends in the second half of 2024 and beyond.
