The Key Takeaways

“Headline inflation remained steady at 2.2% y/y for Mar, which is the same as our estimate, but it defies Bloomberg consensus that there would be an increase to 2.3%. This steady inflation reading is mainly due to fuel subsidies, which helped to lower transport price inflation and favourable base effects. It also offset the persistent rise in food prices, which was a result of CPI components.

“Domestic demand continues to recover with core and services inflation rising further to more that two-year highs of 2.0%, 1.6% respectively (from 1.8% in February respectively) As Malaysia transitioned from 1.8% to 1.5% in Feb to endemicity, this uptrend will likely continue.

Inflation risks remain tilted towards the upside due to a recovering economy and prolonged supply chain bottlenecks. They also have a higher national minimum wages. There are upside risks to this year’s inflation outlook due to the lapse in base effects, particularly in electricity rates during 3Q22. Also, the review of the government’s fuel subsidy system is also a source of risk. We reiterate our 2022 full-year inflation projection at 3.0% (BNM est: 2.2%-3.2%, 2021: 2.5%).”