This was the lowest in 2 years.

Malaysia’s September 2023 inflation came in at 1.9% compared to the market forecast of 2.2%. 2.0% is considered the ‘normal’ level for Malaysia, as historically, Malaysia has averaged that rate. Markets were relatively flat, with the FBM KLCI declining slightly by 0.3% on 19 October 2023.

The reason why I want to talk about this news is that it is a precursor to the implementation of targeted subsidies by the government after Budget 2024. You see, the government recently floated the price of chicken and eggs on 30 October 2023. The market price of chicken now fell below RM9.40 per kg, and chicken farmers seem convinced that consumers will be unaffected by the floating of chicken prices.

In a way, the 2-year low inflation in September 2023 is a reflection of the declining prices of raw commodities such as crude oil, natural gas, fertilizers and chicken feed. What does it mean for you? Much of the higher price increase in the past year can be attributed to the higher raw commodity prices, and some of that increase has been buffered by the price subsidies implemented by the government. With ‘market prices’ declining back to normal levels, it seems like the government is looking to reduce the subsidies for some of these key products.

I think markets are already expecting that some of these subsidies will be removed after the Budget 2024. The key one that investors are looking at is the fuel subsidy. Little information is offered yet on how this system is going to be but a sharp increase in RON95 could have a big impact on consumer and business spending and investment.

You see, in economics, higher raw commodity prices are always bad. This feeds into a higher cost of production which you can’t do much about. Sure, you can have subsidies and institute some form of price control, but they generally need a lot of government funding. Hence, more tax from the people.

For me, inflation this low is just a green light for the government to remove many of these subsidies. I just hope that they don’t just take them off completely and instead opt for gradually reducing them. Time can only tell.

This is part of the the full newsletter for Week 4 of October 2023, which you can find on LinkedIn here.