Promoting Monetary Stability
Inflation: Its evolution, two years after the pandemic
Over the past two years, consumer price
developments shifted from being
disinflationary to inflationary
1
In particular, the COVID-19 pandemic led to
changing demand and supply dynamics
2
Chart 1: Headline Inflation
Chart 2: Pandemic-related Economic Shocks
% yoy
▼ Movement restrictions
Gradual
reopening
Military
of the
conflict
Malaysian
in
economy
Ukraine
6.0
5.0
Initial
4.0 pandemic
3.0 outbreak
Demand
shocks
Transition
to
endemicity
in Malaysia
Decline in global
commodity prices
0.0
-1.0
-2.0
▲ Pent-up demand following reopening of
the economy
▲ Pandemic-related policy support
2.0
1.0
▼ Job and income losses
▲ Disruption to global value chains and
shortages to imported inputs
▲ Port closures and higher freight costs
Supply
shocks
▲ Pandemic SOP costs
-3.0
Legend:
▲ Upward impact to inflation
▼ Downward impact to inflation
Nov-22
Jul-22
Sep-22
May-22
Jan-22
Mar-22
Nov-21
Jul-21
Sep-21
May-21
Jan-21
Mar-21
Nov-20
Jul-20
Sep-20
May-20
Jan-20
Mar-20
-4.0
Source: Bank Negara Malaysia assessments
Source: Department of Statistics, Malaysia and Bank Negara Malaysia
assessments
In 2020-2021, inflation dynamics were driven mostly by pandemic developments. In 2022, however,
inflationary pressures began to be observed in most CPI items, suggesting that other factors beyond the
pandemic were at play
3
Chart 3: Inflation by Pandemic Sensitivity
Recap on COVID-sensitive inflation methodology (for more details, refer to EMR 2021 Box Article: An Anatomy of Inflation:
Effects from the Prolonged Pandemic):
1. CPI items are classified into two categories: Those that are statistically sensitive to pandemic shock (COVID-sensitive) and
those that are not (COVID-insensitive)
2. Among COVID-sensitive items, some faced downward price pressures (negatively affected), while others faced upward
pressures (positively affected)
3. To reflect the pandemic shocks only, this statistic excludes price-administered items, and items which had been affected by
the severe monsoon season in 2021
Transition to
endemicity in
Malaysia
Military
conflict
in Ukraine
%yoy
6
5
Gradual
reopening of
the Malaysian
economy
Initial pandemic
outbreak
4
The pandemic resulted in supply disruptions,
exerting upward pressures to some CPI items
3
2
Negative demand shock led to prolonged
downward pressures for most CPI items
Inflationary pressures spread to
COVID-insensitive items
1
0
COVID-insensitive inflation was mostly stable
COVID-sensitive inflation (negatively affected) (weight: 55% of CPI basket)
Oct-22
Nov-22
Aug-22
Sep-22
Jul-22
Jun-22
May-22
Apr-22
Mar-22
Jan-22
Feb-22
Dec-21
Oct-21
Nov-21
Aug-21
Sep-21
Jul-21
Jun-21
Apr-21
May-21
Mar-21
Jan-21
Feb-21
Dec-20
Nov-20
Oct-20
Aug-20
Sep-20
Jul-20
Jun-20
May-20
Apr-20
Mar-20
Jan-20
Feb-20
-1
COVID-sensitive inflation (positively affected) (weight: 9% of CPI basket)
COVID-insensitive inflation (weight: 17% of CPI basket)
Source: Bank Negara Malaysia estimates
ANNUAL REPORT 2022
21
Promoting Monetary Stability
This turn of events reflected additional shocks, which coincided with pent-up demand following the
reopening of the economy and the general rebound in economic activity
4
Chart 4 and 5: Indicators of Domestic Demand and Economic Activity
Additional shocks in 2022 included the military conflict in Ukraine, droughts in commodity-exporting countries; and domestically,
from full relaxation of COVID containment measures and several policy measures, including the revision in minimum wage and EPF
special withdrawals.
Jul-22
Oct-22
Apr-22
Jan-22
Jul-21
Retail & recreation
-60.0
-80.0
-100.0
80.0
Gradual
Transition to
reopening of
endemicity in
the Malaysian
Malaysia
economy
Note: The chart shows how the number of visitors (or time spent) in
categorised places has changed compared to baseline days (the
median value for the 5-week period between Jan -Feb 2020)
Source: Department of Statistics, Malaysia and Bank Negara
Malaysia estimates
Source: Google Mobility Report
The resulting inflation was evident across most consumer items, most acutely for food.
Nevertheless, there are signs of moderation in price pressures after a year of rising inflation
Chart 6: Monthly Price Changes of CPI Items
Chart 7: Inflation by Categories
(% of CPI basket)
%yoy
10
34
32
14
13
14
37
21
2011-2019 Ave
Dec-22
Nov-22
Oct-22
Sep-22
17
ANNUAL REPORT 2022
Price
decline
Headline inflation
Dec-22:
3.8% (vs 2.2%)
4
2
Recreational services
Dec-22: 2.4%
(vs 1.3%)
0
-2
Sep-22
32
Price
33
stable
Source: Bank Negara Malaysia estimates based on Department of
Statistics, Malaysia
22
Food at home
Dec-22: 4.9%
(vs 3.0%)
6
27
5
8
May-22
11
46 Price
increase
Jan-22
12
54
46
Sep-21
29
53
May-21
27
54
Jan-21
60
Aug-22
9
61
Jul-22
14
29
68
Jun-22
26
62
May-22
14
59
Apr-22
Jan-22
8
Feb-22
13
34
32
Mar-22
60 58
54
Food away
from home
Dec-22: 9.6%
(vs 3.8% 10-year avg.)
Dec-22
5
27
Jun-22
90.0
Oct-21
Apr-21
Jan-21
Jul-20
Apr-20
Jan-20
Jul-19
Oct-19
Apr-19
Jan-19
Oct-20
Movement
Control Order
(MCO)
100.0
-40.0
Aug-22
110.0
Online sales (Pre-pandemic level)
120.0
100.0
120.0
-20.0
Apr-22
140.0
130.0
Feb-22
Online
sales
140.0
Oct-21
160.0
Full Movement
Control Order
(FMCO)
0.0
Dec-21
180.0
150.0
Aug-21
Retail trade
(Pre-pandemic
level)
200.0
20.0
Apr-21
220.0
160.0
Jun-21
Retail trade
Feb-21
240.0
Larger number of
visitors compared
to pre-pandemic
Grocery &
pharmacy
40.0
Oct-20
170.0
Dec-20
260.0
60.0
Aug-20
180.0
Apr-20
280.0
Google mobility indicators
%
Jun-20
Retail trade
index
Retail and online sales volume
Feb-20
Online sales
index
Source: Bank Negara Malaysia estimates based on Department of
Statistics, Malaysia
Promoting Monetary Stability
6
Monetary policy was gradually calibrated
throughout 2022 given firmer economic
recovery and amid signs of demand-driven
inflation
7
Chart 9: Overnight Policy Rate (OPR)
The role of monetary policy is to maintain price
stability that is conducive for sustainable
growth. This, in turn, ensures that purchasing
power is preserved
Chart 8: Stylised MP Transmission
%
3.100
2.900
2.75
2.700
+25 bps
2.500
+25 bps
2.300
+25 bps
2.100
1.900
Source: Bank Negara Malaysia
8
Cost of
borrowing
increases
Nov-22
Jul-22
Sep-22
May-22
Jan-22
Nov-21
Jul-21
Sep-21
May-21
Jan-21
Mar-21
Nov-20
Jul-20
Sep-20
May-20
Jan-20
Mar-20
Mar-22
+25 bps
1.75
1.700
1.500
Dampen
inflationary
pressure
Higher OPR
Lower overall
demand
More people save
than spend
Source: Bank Negara Malaysia assessments
Higher inflation in the past two years affected
all Malaysians. Lower-income households were
most impacted, given their higher spending on
food
9
Short-term measures have helped to partly
alleviate the burden, but are not a substitute
for structural reforms to create higher paying
jobs and improve social protection
Chart 11: Policies to Address High Cost
of Living
Chart 10: Spending on Food (Including Food Away
from Home)
% of expenditure
Short-term measures
Price controls and subsidies on key essential items
(e.g. fresh chicken, fuel and electricity)
B40
35%
Cash transfers to vulnerable households
Key long-term reforms
30%
M40
Enhancements to social safety net1
Active labour market programmes
via enhanced reskilling and upskilling
initiatives to improve income and productivity
Improve food security2
T20
23%
Source: Bank Negara Malaysia estimates based on 2019 Household Income
and Expenditure Survey, Department of Statistics, Malaysia
1/ For more details, refer to BNM EMR 2020 Box Article: A Vision for Social
Protection in Malaysia
2/ For more details, refer to BNM Quarterly Bulletin 3Q 2021 Box Article:
Closing the Food Gap: The Role of Structural Improvements in
Agrofood Security
Source: Bank Negara Malaysia assessments
ANNUAL REPORT 2022
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