KUALA LUMPUR, June 25 — RHB Investment Bank Bhd has lowered its 2024 headline inflation projection for Malaysia to 2.6 per cent year-on-year (y-o-y) from the previous forecast of 3.3 per cent.
The projected range is revised to 2.5 per cent to 2.8 per cent y-o-y versus the former estimate of 3.2 per cent to 3.6 per cent.
“Our revision is founded on the marginal direct impact of diesel subsidy rationalisation on headline inflation and the delay in the implementation of RON95 petrol subsidy rationalisation to end-2024,” it said in a research note today.
RHB Investment said the inflation trajectory going forward would hinge on the lagged impact of services tax revision and implementation of low-value goods tax, as well as the timeline and quantum of RON95 subsidy rationalisation.
“(Also, the outlook would rely on) the potential demand upsides from partial pension fund withdrawals and the spillover impact from higher global commodity and food prices.
“Furthermore, a planned increase in civil servant salaries (in December 2024) might potentially instil further upsides on the inflation pressure,” it said.
The direct impact of the diesel subsidy float in Peninsular Malaysia would be marginal, with a potential upside on headline inflation of less than 0.1 per cent.
“The subsidies will continue for most of the diesel-powered commercial vehicles and public transportation.
“The government would focus on the enforcement to contain the possibility of a disproportionate increase in prices following the recent implementation of diesel subsidy rationalisation,” RHB Investment said.
Additionally, it believes that the RON95 petrol subsidy rationalisation might be delayed to the end of 2024 at the earliest. More details will be released during the tabling of Budget 2025 on October 11.
“We view that the retargeting of the RON95 subsidy rationalisation might take form in a more gradual approach, as it involves a larger consumer base with a significant weightage of 5.5 per cent in the consumer price index basket,” RHB Investment said.
The bank continues to see persistent global inflation amid elevated food, oil, and metal prices, suggesting a potential spillover effect on Malaysia’s inflation for the year.
“Our proprietary indicators for food inflation continue to suggest higher prices, at least into end-2024.
“Separately, oil prices will be underpinned by higher oil demand in tandem with acceleration of global activities coupled with policy-induced supply cuts,” it said.
— Bernama
