Malaysia: Inflation loses traction in May – UOB

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

Key Quotes

“Headline inflation decelerated to 4.4% y/y in May after hitting a 4-year high of 4.7% y/y in Apr. The reading came in below ours and Bloomberg consensus estimate (4.7%). Softer food, retail fuel and personal care prices helped to slow the pace of inflation.”

“Despite headline inflation having peaked in Apr, supply shortages (particularly food related items) triggered by the nearly one-month nationwide full lockdown (FMCO) and elevated global commodity prices continue to pose upside risks to the inflation outlook in the near term. After holding steady at 0.7% for six months, core inflation inched up to 0.8% in May. We expect headline inflation to hover between 3.0%-4.0% in 2H21, bringing average full-year inflation to 3.0% (BNM forecast: 2.5%-4.0%; 2020: -1.2%).”

“Real interest rates stayed in negative territory for the second month. Despite the uptick in core inflation, underlying price pressure is expected to remain subdued given high unemployment and excess capacity in the economy.”