UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the latest inflation figures in Malaysia.
“Headline inflation accelerated for the fourth straight month to a 14-month high of 4.4% y/y in Jul (from +3.4% in Jun), in line with our estimate (4.5%) and Bloomberg consensus (4.4%). This big jump in headline inflation largely reflected upward adjustments in prices of some essential food items (i.e. chicken, eggs, and cooking oil) and services, the lapse of low base effects in electricity tariffs, and costlier vehicle purchases after the sales tax exemption expired on 30 Jun 2022 as planned.”
“We raise our 2022 full-year inflation estimate to 3.5% (from 3.0% previously, BNM est: 2.2%-3.2%) following the full reflection of price adjustments for various price-administered items in the reporting month and higher-than-expected inflation outturns in May-Jun. The combination of factors including year-ago low base effects, still-high commodity prices, persistent currency weakness and intensifying cost pass-through effects will continuously keep headline inflation above 4.0% levels for the remaining months of the year. Our revised inflation outlook has yet to factor in the impact of the new targeted fuel subsidy mechanism that is currently under pilot testing.”
“Given a robust GDP growth print in 2Q22, signs of further economic expansion in 2H22 albeit at a moderate pace, and broadening second-round effects on inflation, Bank Negara Malaysia (BNM) will likely follow-through with a third 25bps rate hike at the coming monetary policy meeting on 7-8 Sep. This will bring the Overnight Policy Rate (OPR) to 2.50%. Besides internal factors, we believe the expected outsized Fed rate hikes in the coming months and global monetary conditions would also be taken into consideration by BNM at the Sep meeting.”