This Week’s Top Headlines

i) The Department of Statistics recently released Malaysia’s latest CPI figure, which came in at 2.0% for July compared to 2.4% the prior month. But why does inflation still feel so high even as the numbers are decreasing?

ii) MIDF’s latest fund flow report for the week ending August 25 shows foreign investors taking profits in the Bursa market after six consecutive weeks of net buying. Year-to-date, the Malaysian market has moved up from being the 2nd-worst performer in Asia to the 5th.

Scroll down to read the details.

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Malaysia’s overall inflation eased to 2.0% in July

Last week, the Department of Statistics released the latest CPI data for Malaysia, which came in at 2.0% for July. It is the lowest level since August 2021, and is lower than the 2.4% recorded in June.

The country's headline inflation rate has been consistently decreasing since its peak of 4.7% in August 2022. The most recent figure is also lower than the 2.1% projected by 21 economists in a recent Reuters poll.

Core inflation, which excludes volatile items like food and fuel, has followed a similar downward trend, dropping to 2.8% in July from 3.1% the previous month.

Bank Negara Malaysia (BNM) anticipates that both the headline and core inflation will continue to decrease for the remainder of the year, with the average monthly inflation rate ranging from 2.8% to 3.8%.

Economists attributed the decelerating inflation rate to the slowdown in price pressures of food, transport, and selected services, coupled with government subsidies.

In light of the easing inflation rate and slowing growth in the gross domestic product (GDP), research houses such as Hong Leong Investment Bank and Kenanga Research are expecting Bank Negara Malaysia (BNM) to hold the Overnight Policy Rate (OPR) unchanged at 3.0% in its upcoming policy meeting in September.

Despite the positive news, consumers are feeling quite the opposite, as prices remain sky-high even as inflation has been declining.

Why does inflation still feel so high?

Before we begin, we need to understand what CPI really means.

The Consumer Price Index (CPI) is a measurement of the monthly change in prices paid by Malaysians, represented by a basket of goods and services.

These include food & non-alcoholic beverages, healthcare, transport, education, restaurants and hotels, etc. You can view this basket in detail from the figure by DOSM above.

Though CPI is widely used to measure inflation, it does not accurately reflect the true cost-of-living.

This is because it only takes the average prices of goods and services from retail outlets across the country.

It assumes that all spending patterns of Malaysians are even, regardless of whether you are rich or poor.

Inflation is Relative.

Though the overall CPI has been steadily moderating, inflation for specific baskets of goods and services still remain elevated.

If these items make up a large part of your expenses, you may perceive inflation as being high.

For example, July’s inflation for 2023 rose to 2.0%, but food & non-alcoholic beverages experienced a 4.4% increase.

The poor, who allocate more of their expenses into food and necessities will suffer more from inflation compared to a rich person who spends more on other groups.

Inflation varies from region to region.

From DOSM’s recently released inflation data, six states recorded increases above the national inflation level of 2.0%.

These states are Pahang (2.6%), Sarawak (2.6%), Wilayah Persekutuan Putrajaya (2.6%), Perak (2.4%), Selangor (2.4%) and Melaka (2.2%).

If you're living in these areas, you may perceive inflation to be much higher than reported.

Inflation is psychological and can stem from anchoring bias.

People tend to notice price increases more than price decreases.

When prices go up and stay there, it creates a perception of rising costs even if the overall inflation rate is moderating.

This is known as "price stickiness" or the "money illusion."

People also tend to link their expectations to recent experiences.

Known as the “anchoring bias,” it is a type of cognitive bias that binds you to your first impression, causing you to rely too heavily on the first piece of information on the topic.

If inflation was notably high recently, even if it's currently decreasing, the memory of those high prices can influence your perception of current prices.

Wages not keeping up with Inflation

If your income isn't keeping up with inflation, you may feel the impact of rising prices more severely.

This is especially true for most workers during the pandemic.

Despite prices soaring to all-time highs in 2021, median monthly salaries were lower than that of 2019.

Invisible Inflation

Sometimes, products and services change in quality or quantity while prices remain the same.

This phenomenon, known as "shrinkflation" or "hidden inflation," can make it seem like you're paying more for the same goods.

How can we lessen the impact of inflation?

Invest.

You should be worried if you have RM50,000 lying dormant in your bank account or under your mattress.

If your funds are not earning above the current OPR rate (3.0%), you’re not only losing out on inflation, but the gains from a higher OPR as well.

Place your money into low-risk investments such as Fixed Deposits, Money Market Funds, Cash Apps (Versa, TnG), ASB/ASM, or EPF.

Foreign Investors are taking profits

After six consecutive weeks of net buying which saw a record inflow of RM2.03 billion, foreign investors have cut their buying streak by reaping the profits off the recent rally in the local market.

According to MIDF’s fund flow report, foreign investors net sold -RM153.4 million in the week ending August 25.

Despite this, three sectors experienced substantial net foreign inflows - Utilities (RM122.4 million), Plantation (RM112.2 million), and Property (RM54.0 million).

Meanwhile, the sectors that registered the most significant net foreign outflows were Financial Services (-RM222.3 million), Consumer Products & Services (-RM107.1 million), and Transportation & Logistics (-RM60.2 million).

Stocks that saw notable inflows from foreign funds include Tenaga Nasional (RM79.7 million), Boustead Plantations (RM74.1 million) and UMW Holdings (RM41 million).

On the other hand, Public Bank, Malayan Banking (MAYBANK), and Press Metal Holdings have experienced large outflows from foreigners at -RM59.9 million, -RM57.8 million, and -RM48.1 million, respectively.

Year-to-date, the Bursa market has improved from the 2nd worst performer in Asia to the 5th.

Foreign investors have been net sellers of domestic equities at a rate of -RM2.56 billion.

Thailand is one of the weakest-performing market in MIDF’s tracking, due to political instability.

That’s all for this week’s newsletter!

DISCLAIMER: The information contained in this newsletter is for informational and educational purposes only. Nothing herein shall be construed to be financial, legal, or tax advice. The opinions of this newsletter are solely that of the publisher.

Get early access to our newsletter and miss nothing from the markets. Join our journey towards financial literacy today.

Our private announcement group will keep you updated with market movers and urgent matters. For only $1/month, you'll receive our weekly newsletter every Sunday night and daily notifications on important events, some with detailed thoughts from economist Mr. Sani Hamid and RinggitPlus founder Hann Liew.

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✅ Cancel anytime.

✅ Zero ads, zero shills.