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When I was in primary school, my favorite thing to do during lunchtime was to rush to the canteen and buy a plate of nasi lemak for RM1.00. I don’t need the fancy sotong or chicken rendang, just rice, peanuts, ikan bilis, and an egg.

That plate of nasi lemak now costs at least RM3.50 twenty years on. If you have been going to the market last year, you would have noticed many sellers raising their prices, especially in the poultry department.

You might be wondering as the layperson on the street, how inflation in 2023 would affect you and what you could do. This article will explain how you can understand the inflation trends in 2023 and make better financial decisions for yourself.

#1 Inflation was high in 2022 due to the Russia-Ukraine conflict.

Prices rose by 3.3% in 2022 for the year compared to 2.5% in 2021, and as high as 4.7% in August 2022. This higher inflation was driven mainly by the food & beverage, recreation & culture services, and restaurants & hotels segments (illustrated in the chart below).

Let’s get some things right first in 2022.

The Russia-Ukraine conflict caused global commodity prices such as crude oil, natural gas, wheat, soybean, animal feed, and fertilizers to rise sharply. Both countries are major exporters of such products.

Malaysia imports a lot of wheat, soybean, animal feed, and fertilizers. Wheat is used to make flour and noodles, while soybean is used mainly for tofu and tempeh.

Furthermore, most of the animal feed and fertilizers are imported from overseas markets, and the higher price of these products have forced vegetable and poultry farmers to raise their prices.

#2 Inflation has been coming down since the beginning of the year

Good news. With the resumption in supply from Russia and Ukraine due to the Black Sea grain deal, most of the global commodity prices have been moderating.

Inflation in Malaysia has been moderating from its peak of 4.7% in August 2022 to 3.3% in April 2023. However, this does not mean that prices are coming down.

It just means that the increase in prices is not that high now. Imagine that your nasi lemak price increased by 10.0% to RM3.20 per pack last year, but now it might just increase by 5.0% to RM3.36.

Prices of nasi lemak are still higher.

#3 Bank Negara Malaysia and the Ministry of Finance project that inflation will range between 2.8% and 3.8%.

Now, what does this mean? Context is important. Last year’s inflation was 3.3%. This year, it could range between 2.8% and 3.8%.

This means it could be lower or higher according to Bank Negara Malaysia (BNM) and Ministry of Finance (MoF). They are not committing to the trend of prices this year.

This makes it harder to understand anything from their projections. However, what we can tell so far is that inflation has been coming down and is averaging 3.5% for the first four months of 2023.

For inflation to be below 3.3% for 2023, it would have to average 3.1% for the rest of the year. I don’t have a crystal ball but several of these factors could indicate that inflation could be lower:

1. Deferment of targeted subsidies to next year.

Bank Negara Malaysia in its annual report projected that targeted subsidies in 2H 2023 could raise prices as the subsidies would be less and lead to higher prices for fuel and other controlled items.

• Global commodity prices are much lower

After rising by so much in 2022, global commodity prices have sharply declined back to levels before the Russia-Ukraine conflict. While the conflict is still ongoing, there do appear to be any factors that could lead to a shortage of materials again.

• There could be a global recession in 2H 2023

Recessions are no joke but they do mean that there is less demand for commodities which should keep prices low.

#4 Food & beverage and restaurant & hotels prices remained high for now

Food & beverage and restaurant & hotel inflation remained high at 6.3% and 6.6% respectively in April 2023.

For context, they are much higher when compared to their respective historical average of 2.1% and 1.2% from 2017 to 2021.

Why is this important? These expenses make up the majority of Malaysian household spending at 31.2%.

With the reopening of the economy in 2022, there is a release of pent-up demand for more going out to eat and traveling within Malaysia.

While other segments’ inflation has been coming down, you should still be wary about the potentially higher cost of food, eating out, and traveling.

#5 The price increase is uneven across the Malaysian states

The 3.3% inflation rate in April 2023, is just a weighted average of all the Malaysian states. There are several states which are recording still high inflation.

Putrajaya recorded the highest inflation in the state at 4.1%, followed by Sarawak (3.9%), Selangor (3.8%), and Pahang (3.5%).

If you are living in these states, be mindful that you might experience higher price increases compared to the rest of the other states.

In Putrajaya, the main segments driving its high inflation were surprisingly the Housing, Water, Electricity, Gas & Other Fuel (+4.7%, highest among all states), and restaurant & hotels (+12.3%, highest among all states).

Meanwhile, Sarawak saw the highest inflation rate of 8.0% for its food & beverage segment among all the states. Sounds like the price of Kolo Mee and Sarawak Laksa is on the rise.

Conclusion

Inflation is a hotly debated topic every time among Malaysians. The cost of living is high so we all need to properly understand the inflation trend moving forward to make the right financial decisions.