The Statistics Department reported Malaysia’s headline inflation, as measured by the consumer price index, eased to 3.8% in December 2022 from 4% in November 2022.
PETALING JAYA: Malaysia’s headline inflation settled at 3.3% in 2022, compared with 2.5% in 2021, but core inflation rose to its highest since the inception of data at 3% for the year, against 0.7% in 2021.
The Statistics Department reported Malaysia’s headline inflation, as measured by the consumer price index (CPI), eased to 3.8% in December 2022 from 4% in November 2022.
Core inflation, which excludes food and energy prices due to its volatility, however increased by 4.1% in December compared to a year ago, but fell from its peak of 4.2% in November.
Bank Islam Malaysia Bhd chief economist Firdaos Rosli believes core inflation is trending higher as compared to headline inflation due to the impact of imported inflation amid a weaker ringgit versus the US dollar.
“The index keeps climbing, but at a slower rate. What this means to the masses is that prices will remain elevated in 2023 but they will increase at a slower pace than in recent months,” he told StarBizWeek.
Despite headline inflation having peaked at 4.7% in August 2022, Firdaos believes prices will likely remain elevated on the back of prolonged geopolitical tensions and persistently high commodity prices.
He expects the CPI to continue its downward trend in the second half of 2023 (2H23), owing to base effects.
“The stronger ringgit outlook may aid the downtrend as well, bringing inflation even lower,” he said.
Firdaos foresees headline inflation averaging at 3% in 2023, under the assumption Putrajaya maintains the current fuel subsidy.
“Inflation will, inevitably, trend higher than our baseline if the government proceeds with subsidy rationalisation in 2023 amid higher retail oil prices.
“We posit that CPI will increase by 0.42% above the baseline for every 10 sen increase in RON95,” he noted.
AmBank Economic Research maintained its 2023 inflation forecast at 3%, to partly reflect the stronger ringgit, which has appreciated by 9.7% against the greenback from a low of RM4.75 in November 2022.
The bank added that lower commodity prices also helped in containing the headline price pressure in Malaysia.
“Core inflation is expected to decline in tandem with slower rate of private consumption expected over the same period. Risks on core inflation tilts to the upside given private consumption remains strong judging from the higher distributive trade sales in the 2H22,” it noted in a report yesterday.
Owing to the elevated core inflation, the research house expects another 25-basis-point rise in the overnight policy rate (OPR) to 3% by Bank Negara.
The research house added that the latest fall in core inflation figure is too early to conclude that core inflation may have peaked back in November 2022.
“That said, the domestic demand situation in 1H23 is likely to influence our assessment on the OPR as well,” it noted.
Firdaos expects consumer spending habits will likely remain the same as there are limited substitutes for many products in the market.
“It is not as simple as substituting one product for another. In order to maximise utility, consumers would probably substitute Grade A for lower grade eggs, but there is no perfect substitute for eggs. They would still consume eggs as part of their daily diet anyway,” he said.
Firdaos believes there are a couple of ways to reduce or stabilise prices of goods and services.
First is by increasing the supply through higher imports, production or investments in key CPI goods such as housing, energy, transport and food.
The other suggestion is to reduce the tax burden on these products, if there are any.
