KUALA LUMPUR, Dec 22 — Malaysia’s domestic demand is set to stay on the expansionary path from the fourth quarter (4Q 2023) onward as the country’s inflation continues softening, said MIDF Research.
Its headline inflation rate fell to 1.5 per cent year-on-year (y-o-y) in November, the lowest since February 2021.
The research firm said the softening inflationary pressure, among others, was due to the high base effects, the normalisation of global commodity prices, and supportive fiscal policies.
“Also, the moderating trend of core consumer price index (CPI) provides more reasons for Bank Negara Malaysia (BNM) to keep its overnight policy rate (OPR) in status quo in 2024,” it said in a note.
However, MIDF Research warned that the headline inflation rate may trend higher at 3.2 per cent next year, as the fuel-targeted subsidy is set to be rolled out as early as May.
It sees the low inflationary pressure will persist until the first half of 2024 (1H 2024) amid the better domestic supply chain, stabilisation of interest rates, and the normalisation of global commodity prices.
“The downside risks for Malaysia’s CPI and Producer Price Index (PPI) in 2024 are prolonged weakness in the ringgit and surge in petrol and diesel prices following subsidy rationalisation efforts.
“Also, global supply chain pressures may surge in 4Q 2023 onward following geopolitical tension in the Red Sea and the bottlenecks in the Suez Canal and the Panama Canal,” MIDF Research said.
Meanwhile, it reckons the government may introduce a managed-float price mechanism for RON95 at RM2.25-2.35 per litre and provide cash handouts to those eligible as guided by the central database hub (Padu).
“Thus, non-food inflation is set to rise by 2.5 per cent while better domestic supply and normalised global commodity prices shall push the food inflation rate lower to 4.5 per cent in 2024,” MIDF Research said.
— Bernama
