Core inflation forecast at upper range of 2% to 3% in 2022

KUALA LUMPUR: Core inflation is projected to be closer to the upper end of the 2.0 to 3.0 per cent range in 2022, as demand continues to improve amid the high-cost environment, said Bank Negara Malaysia (BNM) Governor Tan Sri Nor Shamsiah Mohd Yunus.

She said upside risks to the inflation outlook would be subjected to the strength of domestic demand, global prices and domestic policy measures.

"Nonetheless, the extent of upside pressures on inflation are expected to remain partly contained by existing price control measures, fuel subsidies and the existence of some spare capacity in the economy,” she said during a joint press conference by BNM and the Department of Statistics Malaysia on Malaysia’s second quarter (Q2) 2022 gross domestic product (GDP) performance here today.

Nor Shamsiah also noted that the increase in food inflation, which has been the main driver of domestic inflation recently, was mainly caused by higher prices of key global commodity prices and the strength of the US dollar which has also compounded the price pressure.

Other global and domestic factors, which vary across goods, are also contributing to food inflation such as logistics, labour costs and demand.

Moreover, the impact of the exchange rate movements can also vary across different items, she added.

For the remainder of this year, Nor Shamsiah expects headline inflation to trend higher in some months, due in part to the base effect of the discount on electricity prices implemented in the third quarter of 2021.

"Overall for Malaysia, these cost pressures have led to higher headline inflation, which rose to 2.8 per cent during the quarter and 3.4 per cent for June,” she said.

During the quarter, BNM said headline and core inflation increased to 2.8 and 2.5 per cent, respectively, as compared to 2.2 and 1.7 per cent recorded in the first quarter, reflecting an improvement in demand conditions amid the high-cost environment, with price increases mainly driven by food away from home and other food items.

"Correspondingly, the share of Consumer Price Index items recording monthly price increases averaged higher at 63 per cent. We will continue to monitor these developments,” said the governor.

Whether the implementation of targeted subsidies by the government would push up the inflation rate and impact the economy, Nor Shamsiah said the assistance in the form of targeted subsidies is necessary to strengthen social protection and provide safety nets to help the vulnerable groups.

"We have seen the uneven growth and segments of households and businesses which have yet to recover to pre-pandemic levels.

"That is the rationalisation from a blanket subsidy to targeted subsidy, where the savings that you can get will help the vulnerable groups that may take a longer time to recover from the pandemic and for them to employ new skill, upskilling, and reskilling to meet with future jobs demand.

"Therefore, the impact you will have on the economy can be managed,” she said.

Nor Shamsiah further said targeted subsidies are best done in a gradual manner and take into account the current inflation environment, that is when the country is not facing high inflationary pressures. - Bernama

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