UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting review the latest inflation figures in Malaysia.

Key Takeaways

“Headline inflation eased for the first time in six months to 4.5% y/y in Sep, confirming our view that consumer price pressures had tentatively peaked at 4.7% in Aug. The reading came in a tad lower than our estimate and Bloomberg consensus of 4.6%. The faster-than-expected abatement was primarily thanks to lower prices of food, non-subsidized fuels and maintenance & repair of dwelling despite a weaker currency and year-ago low base effects.”

“Owing to base effects, stickier global inflation conditions and heightened currency volatility, we keep the view that Malaysia’s consumer price inflation will likely stay above the 4.0% level for the rest of the year before decelerating towards the 2.0% level by 4Q23. Hence, we maintain our full-year inflation forecast at 3.5% for 2022 (MOF est: 3.3%, 2021: 2.5%) and 2.8% for 2023 (MOF est: 2.8%-3.3%), barring any changes in domestic policy particularly the fuel and electricity subsidies as well as ceiling prices for staple food.”

“Given that inflation expectations are anchored to official targets and risks to the domestic growth outlook are tilting to the downside, we believe Bank Negara Malaysia (BNM) will tread more cautiously despite a more aggressive Fed rate hike path. We expect BNM to take an intermittent pause to assess the effect of its cumulative 75bps rate hikes to date, domestic policy outcomes, as well as higher external risks and weaker global outlook. We expect the Overnight Policy Rate (OPR) to be left unchanged at 2.50% at the coming 2-3 Nov meeting, which is the final monetary policy meeting for the year.”