KUALA LUMPUR, May 24 — MIDF Research has revised downward its headline inflation rate forecast for this year to 2.7 per cent from 3.2 per cent earlier, on expectation of targeted fuel subsidy implementation and the moderation of food price growth.
The research house said it expects targeted fuel subsidies to kick off in the fourth quarter, revising its initial projection of a June rollout.
“We postulate that the government may require more time to harness the subsidy distribution and fuel price mechanisms,” it said in a research note today.
Earlier today, the Statistics Department announced that the country’s inflation rate remained at 1.8 per cent in April for the third consecutive month.
MIDF Research said in the first four months of 2024, headline inflation rate averaged 1.7 per cent versus 2.5 per cent in 2023, while non-food inflation was at 1.5 per cent (2023: 1.3 per cent) and food inflation at 1.9 per cent (2023: 4.8 per cent).
Average core inflation rate was at 1.8 per cent (2023: 3 per cent).
The country’s Producer Price Index (PPI) surged to a 15-month high in March as the input inflation rate rose by 1.6 per cent year-on-year (y-o-y). Following slight uptick of global oil prices, crude materials input cost jumped by 7.4 per cent y-o-y, which was the fastest gain since July 2022.
“Looking ahead, we foresee the PPI to stay on an uptrend, particularly via the intermediate materials and fuels and lubricants (subsector) amid the targeted diesel subsidy mechanism, which is expected to kick off in June,” it said.
OCBC Bank said with year-to-date headline inflation averaging 1.7 per cent y-o-y, there are downside risks to its full-year 2024 average headline inflation forecast of 2.5 per cent y-o-y.
“That said, the timing and mechanism of the targeted fuel subsidy rationalisation remains to be clarified,” it said.
Assessing the country’s fiscal position, OCBC said after looking at measures announced, implemented and those in the pipeline, the fiscal deficit looks to be narrower by 0.5 of a percentage point of the gross domestic product (GDP) this year compared with last year.
“The diesel subsidies, if implemented in June and depending on the mechanism, could save 0.1 per cent of GDP in 2024, the electricity subsidies are expected to save 0.2 per cent of GDP, and the new tax measures are expected to generate 0.2 per cent of GDP,” it said.
The government aims to narrow the fiscal deficit to 4.3 per cent of GDP this year from 5 per cent last year.
OCBC said fiscal consolidation is clearly on track but it remains to be seen whether the deficit target can be reached.
“Based on available information and the first quarter of this year outturn, the risks of fiscal slippage have risen,” it added.
On the overnight policy rate, OCBC said Bank Negara is likely to keep its policy rate unchanged at 3 per cent for the rest of this year.
“The details of fuel subsidy rationalisation suggest the government is keen on keeping the inflationary impact in check.
“The risk, however small, is that if inflationary pressures become more persistent and pervasive, rate hikes may be back on the table,” it said.
— Bernama
