UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting comment on the recently published CPI results in Malaysia.

Key Quotes

Headline inflation came off further to 2.8% y/y in May (3.3% in Apr), reaffirming a ninth straight month of deceleration and the lowest reading since Apr 2022. This came in below ours and market consensus of 3.0%. The moderation was mainly due to lower food and non-alcoholic beverages, furnishing and household equipment, transport, and communication. The easing trend is also due to rising base effects while subsidies and easing input costs have helped to contain cost of living

A slower-than-expected headline inflation in May alongside slower core CPI and services inflation indicates a continued disinflation trend that is expected to extend for the remaining months of the year.

With year-to-date inflation average of 3.4% and projections for further disinflation in 2H23, our full-year inflation forecast of 2.8% remains on track (BNM est: 2.8%-3.8%, 2022: 3.3%). Real interest rates turned positive for the first time in more than two years. Given moderating inflation trends and growth uncertainties, we continue to expect BNM to keep the Overnight Policy Rate (OPR) unchanged at 3.00% for the rest of the year. We take a more cautious view on the OPR path in view of weaker economic data points in Apr, lagged effects of past rate hikes, and easing inflation.