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UOB Group Chief Economist Julia Goh and Economist Loke Siew Ting assess Malaysia’s June inflation numbers.

Key things

Headline inflation maintained its downward trend for the 10th consecutive month, hitting a 14-month low of 2.4% y/y in June (May: 2.8%). The results were in line with our estimate and the Bloomberg consensus. Almost all components of the consumer price index (CPI) contributed to the slowdown, except for the healthcare segment. Comparative fundamentals and the continuation of government subsidies also contributed to the easing of consumer price pressures in the country during the month.

With recent inflation results, downside risks to domestic growth and the near peak of the global monetary tightening cycle, we continue to see a lack of compelling reasons for Bank Negara Malaysia (BNM) to raise its policy rate further this year. Real interest rates reached positive values ​​for the second month in a row. Both core inflation and service inflation slowed to their lowest level in a year. All of these facts reflect the lagged effects of past interest rate hikes amid persistent labor market stagnation. We therefore continue to expect BNM to leave the overnight base rate unchanged at 3.00% for the rest of the year.

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