PETALING JAYA: Headline inflation is expected to ease going into 2023, but living costs will remain a concern with retail prices unlikely to come down anytime soon, said an economist.
AmBank Research group chief economist Anthony Dass believes the expected global economic slowdown in 2023 would ease the supply-demand imbalances that have been distorting prices.
“This is reflected by the easing of global supply chain price index, freight chargers as well as global commodity prices,” he said.
He also believes the slower economic outlook in 2023 will result in an ease in spending by households who are likely to focus on discretionary spending than on luxury items.
“Together with a stronger ringgit outlook in 2023 against the US dollar, it will help soften rising import bills,” he added.
Dass expects headline inflation in the country to trend below 4% in the coming months, with cost push pressure expected to ease in 2023 together with some base effect and moderate consumer spending.
“Our inflation projection is around 3.2% and 2.5% for 2023,” he noted.
On cost of living, Dass said: “While we can possibly expect some level of softening of ‘transfer pricing’ to the public, the underlying retail prices are unlikely to come down even if the headline inflation eases.”
While the ongoing assistance seems to be useful, he suggested some short term solutions namely “fire fighting” policies.
“We need to look at the structural issues that are leading towards the rising living costs which are hurting the pockets of the people.
“In doing so, we need to address the cost push inflation driven by issues like labour and talent shortages, rent seeking, supply chain and other cost related issues,” he said.
At the same time, Dass believes more value added jobs need to be created for the public, as it would create and ensure sustainability of livelihood rather than merely focusing on assistance, which are only temporary and a burden to the country’s balance sheet.Malaysia’s headline inflation in October continued to trend downwards for the second consecutive month, after peaking in July by 4.7% year-on-year (y-o-y).
In October, headline inflation rose by 4% y-o-y, slightly above both AmBank Research and consensus expectations of 3.9% y-o-y.
“This brings the average first 10 months inflation rate to 3.3% y-o-y, which is marginally higher than our 2022 full year forecast of 3.2% y-o-y,” Dass noted.
Dass said that despite inflation easing y-o-y in October (partly due to the base effect), on a month-on-month (m-o-m) basis inflation rose by 0.2% which is higher than September’s figure of 0.1% rise.
The higher m-o-m inflation was driven by components like food and beverage, which increased by 0.5% m-o-m as well as restaurants and hotels, which increased by 0.3% m-o-m.
There were, however, food items that showed a slower growth momentum as compared to September.
Among the subgroups were vegetables, which slowed down to 4.8% m-o-m from 6.3%, as well as oils and fats to 2.6% from 3.8%, noted Dass.
He stated core inflation remains on an uptrend. It increased from 4% y-o-y in September 2022 to 4.1% y-o-y in October 2022, the highest reading so far this year. Hence, the year-to-date core inflation is 2.8%,” he said.
