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Malaysia's Inflation Holds Steady

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Andrew R. Michaud

• January 22, 2024

Malaysia's inflation rate remained unchanged in December 2023, maintaining the same pace as the previous month. The consumer price index increased by 1.5% year-on-year, with a slight decline in food prices, according to the Department of Statistics. This result aligns with the median forecast of six economists surveyed by The Wall Street Journal. Overall, Malaysia's inflation rate for 2023 stands at 2.5%, lower than the 3.3% seen in the previous year, but consistent with the inflation print of 2021.

Expected Stability in Inflation

Economists anticipated the steady inflation rate for December. Experts from Kenanga Investment Bank believed that food prices, particularly those of fish and vegetables, would continue to be key drivers of inflation. The stability in prices indicates a stable inflation environment leading up to the country's central bank meeting scheduled for later this week.

Central Bank's Monetary Policy Stance

The recent data release coincides with last week's disappointing trade and economic growth figures for 2023, which fell short of market expectations. As a result, it is expected that Malaysia's central bank will maintain its current interest rates during this week's meeting. The Bank Negara Malaysia stated that its monetary policy stance remains consistent with its assessment of inflation. However, it asserts its vigilance towards any developments that could impact both inflation and growth outlooks.

Inflation in Malaysia: December 2021 Update

According to the latest data from December's CPI (Consumer Price Index), the prices of food and non-alcoholic beverages, which carry a weighting of 29.5%, rose by 2.3% compared to the previous year. This increase represents a slight easing from the 2.6% growth seen in November.

In December, core inflation, which excludes the volatile prices of fresh food and government-administered goods, grew by 1.9% compared to the same period a year earlier.

On a monthly basis, consumer prices saw a modest increase of 0.2% in December, compared to no change in November.

Economists at HSBC Global Research anticipate that inflationary pressures will "remain in check over the coming months." However, they note that headline inflation may soon reach its lowest point. Factors such as the increasing impact of the El Nino weather pattern and geopolitical tensions could potentially pose threats to food and fuel prices. However, HSBC highlights that government subsidies could help alleviate some of this pressure. Additionally, they expect the "high base effect" to start fading out by the second half of the year.

Here is a breakdown of inflation figures by sector for Malaysia in December:

• Food & Non-Alcoholic Drinks: 2.3% YoY increase (Weighting: 29.50%)
• Housing, Utilities & Fuels: 1.6% YoY increase (Weighting: 23.80%)
• Transport: 0.3% YoY increase (Weighting: 14.60%)
• Misc Goods & Services: 2.7% YoY increase (Weighting: 6.70%)
• Recreation Services & Culture: 1.9% YoY increase (Weighting: 4.80%)
• Communication: -3.7% YoY decrease (Weighting: 4.80%)