Malaysia to suffer price pressure in end-2012

Good news rice supply is at a 73% level of self-sufficiency.

According to CIMB, Malaysia inflation has remained benign, tracking 2% in 1H12 (vs. 3.2% in 2011). However, we believe consumer prices will rise gradually towards year-end from: 1) higher festive demand, 2) supply disruptions from bad weather, and 3) costlier imported raw materials due to ringgit weakness.

Here's more from CIMB:

That said, we believe the government’s intervention should help keep food inflation and other commodities-induced price pressures manageable, such as: 1) fuel and food subsidies, 2) ample domestic rice supplies with a relatively high rice self-sufficiency level of 73% while Malaysia imports about 30% of its annual rice consumption, and 3) price stabilisation measures should food prices go through the roof. When rice prices spiked in mid-2008, the government imposed temporary measures, such as setting a ceiling price for rice and introducing a Rice Subsidy for the People scheme, which gave out RM24 and RM10 vouchers.

We also believe that with looming general elections, the government will carefully manage inflation expectations to minimise the impact on the lower-income households. We think higher price pressures will only come through next year: 1) when the government resumes its subsidy rationalisation plan (after general elections), albeit it is likely to reduce the subsidies in a gradual manner, and 2) when the minimum wage policy comes into effect in Jan 2013.