KUALA LUMPUR, Jan 22 — Research houses have projected that Malaysia’s headline inflation will be in the 3.2 per cent to 3.3 per cent range this year.
MIDF Research opined that a low inflation environment may last until the first quarter of 2024.
“Looking into the first half of 2024, we should expect a gradual pick-up in overall prices following an increase in utility charges and implementation of higher sales and services tax (SST) rate to 8.0 per cent and 10 per cent for low-value goods tax (LVGT).
“In the second half, the roll-out of fuel-targeted subsidies may see higher retail fuel prices,” it said in a note.
MIDF Research foresees that the fuel-targeted subsidy is expected to be rolled out as early as June 2024.
“We opine that the government may introduce a managed-float price mechanism for RON95 at RM2.25-RM2.35 per litre and provide cash handouts to those eligible as guided by the Central Database Hub (Padu),” it said.
As for 2023, the headline inflation rate was recorded at 2.5 per cent while the core inflation rate was at 3.0 per cent.
Globally, food prices contracted by 13.7 per cent last year after two consecutive years of double-digit expansion rate, it noted.
Following that, Malaysia’s food inflation rate was lower at 2.3 per cent year-on-year.
“Nevertheless, Malaysia is highly exposed to external factors and currency movements as a net importer of food country.
“As of the first 11 months of 2023, food imports to total imports ratio stood at 6.5 per cent, slightly lower than the peak of 7.0 per cent in 2020,” MIDF Research said, adding that on the flip side, the food exports ratio is only 3.2 per cent.
Meanwhile, RHB Investment Bank Bhd is maintaining its 2024 headline and core inflation projections at 3.3 per cent and 3.6 per cent year-on-year respectively.
“One of the primary determinants of the inflation trajectory in 2024 would be the policy manoeuvres amid the fiscal consolidation plan, that is, the revision in services tax coupled with the planned fuel subsidy rationalisation in phases.
“We also recognise other potential upside risks, including upside in food inflation amid the lagged impact of El Niño conditions, upside bias in crude oil and commodities prices, and the build-up of demand-side pressure in tandem with improved growth prospects,” it said.
The investment bank reckoned that fiscal consolidation measures such as adjustments in fuel prices and tariffs for utilities, as well as the revision in services tax, could inject upside risks into Malaysia’s inflation momentum.
On the external front, it remained cautious about the potential upside bias for commodity and food prices in the upcoming months, buoyed by higher demand amid the acceleration in global activities and the risks of supply congestion.
RHB IB opined that the overnight policy rate (OPR) will likely be maintained at 3.00 per cent for 2024, on the caveat that headline inflation falls in the official range of 2.1 per cent to 3.6 per cent.
MIDF Research also concurred that Bank Negara Malaysia will keep the OPR status quo in its first Monetary Policy Committee meeting this week amid softening headline and core consumer price index trends.
— Bernama
