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

Key Takeaways

“Headline inflation moderated for the third straight month to 2.2% y/y in Feb (from 2.3% in Jan), defying our estimate (2.5%) and Bloomberg consensus (2.4%) for an uptick. It marked the lowest reading in five months and bucked the regional trend of rising inflationary pressures.”

“The smaller inflation rate in Feb was chiefly credited to the government’s fuel subsidies that helped to contain the effects of elevated global oil prices on transport costs. The COVID-19 Omicron wave which started in early Feb further weighed on passenger transport services by air during the month. This fully offset a broad-based gain across other consumer price index (CPI) components last month.”

“Notwithstanding Feb’s softer inflation, we expect CPI growth to ratchet up over the next few months with signs of domestic inflation pressures building up from surging costs and improved demand as the economy reopens. Uncertainties surrounding the Russia-Ukraine conflict and sanctions remain key upside risks to inflation. Domestically, the ongoing post-pandemic labour shortages, increase in national minimum wage, and review of the government’s fuel subsidy mechanism infer potential second-round effects. We maintain our 2022 full-year inflation forecast at 3.0% for now (2021: 2.5%).”