MIDF Research: Malaysia’s inflationary pressure to remain stable with receding global commodity prices

MIDF Research said Malaysia’s palm oil price has been trending downward below RM4,000 per tonne mark since early July 2022 and the commodity price has been hovering above RM6,000 per tonne during March 2022 until May 2022. — Picture by Firdaus Latif

MIDF Research said Malaysia’s palm oil price has been trending downward below RM4,000 per tonne mark since early July 2022 and the commodity price has been hovering above RM6,000 per tonne during March 2022 until May 2022. — Picture by Firdaus Latif

Tuesday, 19 Jul 2022 11:56 AM MYT

KUALA LUMPUR, July 19 — The overall inflationary pressure in Malaysia will remain stable particularly with the receding global commodity prices, says MIDF Research.

It said Malaysia’s palm oil price has been trending downward below RM4,000 per tonne mark since early July 2022 and the commodity price has been hovering above RM6,000 per tonne during March 2022 until May 2022.

“In fact, its new peak hit RM7,194 per tonne on April 29. With the decline in crude palm oil price, we shall expect less pressure on food inflation in the second half of calendar year 2022.

“We foresee better food supply globally and it would ease food price pressure domestically in the second half of this year. Hence, we maintain our headline CPI at +2.8 per cent for this year, within Bank Negara’s inflation forecast range of +2.3-3.3 per cent,” it said in a note today.

Separately in its new report, Moody’s Investors Service said China’s economic slowdown and higher input costs would reduce the profitability of companies in most sectors, except for those in upstream commodity-related industries.

Still, it said most companies will maintain steady leverage because of prudent investment planning, while leverage will increase for some because their debt growth will outpace earnings before interest, taxes, depreciation and amortisation (EBITDA) expansion.

“Rising interest rate rises will make it harder for high-yield industrial corporates to access funding. In particular, property developers will face increasing challenges in addressing upcoming maturities with refinancing costs picking up meaningfully, likely resulting in more defaults,” senior vice-president Lina Choi said.

She said the strong commodity prices will support the cash flow of upstream commodity-related companies.

Although mining companies may face higher operating costs, they will be able to maintain their profitability and steady leverage.

Leverage will remain stable, too, for Internet companies as well as food and beverage companies with their revenue growth, strong cash flow generation and prudent investment strategy.

“On the other hand, leverage will rise for construction, chemical, auto-related and technology hardware companies because of higher costs and debt-funded expansion.

“Nevertheless, Moody’s expects the increase in leverage to be moderate. Their strong market positions and solid funding access will continue to support their credit quality,” Choi said.

Meanwhile, the credit quality of transportation and utility companies will remain largely stable, but with some differentiation due to capital spending and high fuel costs. But most companies will receive strong government support and funding access to mitigate the challenges. — Bernama