Malaysia: Inflation loses traction in October – UOB
29.11.2022, 12:59

Malaysia: Inflation loses traction in October – UOB

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

Key Takeaways

“Headline inflation decelerated for the second straight month to 4.0% y/y in Oct (from +4.5% in Sep), in line with our estimate (4.0%) and Bloomberg consensus (3.9%). It was primarily due to the base effects in electricity component, cheaper non-subsidized fuels, accommodation services, and furnishing & household appliances in the month.”

“Year to date (ytd) as of Oct, Malaysia’s headline inflation averaged 3.3%, suggesting that our 2022 full-year inflation estimate of 3.5% remains plausible (MOF est: 3.3%, 2021: 2.5%). We expect inflation to continue its downtrend going into 2023 and likely to average 2.8% (MOF est range: 2.8%-3.3%), assuming no changes in domestic policy particularly the fuel and electricity subsidies as well as price cap for staple food.”

“However, core inflation continued to reach a fresh high of 4.1% (from +4.0% in Sep) and lifted ytd core inflation rate up to 2.8% (BNM’s 2022 full-year est: 2.0%-3.0%). This signals the persistent buildup of demand-pull price pressures as the economy improves along with higher wages. It will justify further preemptive moves by BNM in the coming months to anchor inflation expectations amid a continuation of Fed rate hikes and domestic political resolution that paves the way for pro-growth policy and reforms. We reiterate our OPR call for a 25bps hike at each of the next two monetary policy meetings in Jan and Mar next year, before taking a pause at 3.25% thereafter.”

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