PETALING JAYA: Malaysia’s consumer price index (CPI) growth will likely stay below 3% year-on-year (y-o-y) in the near term due to a high base of comparison from the previous year.
While this may suggest that inflation in the country is under control, there is still an upside risk to major price increases due to a combination of external and domestic factors.
According to Maybank Investment Bank (Maybank IB) Research, inflation risk remains biased to the upside amid Malaysia’s fluid policy on price subsidies and controls.
In addition, there is the El-Nino weather phenomenon that could impact the prices of food, it said.
“We keep our 2023 inflation rate forecast of 3%, as monthly inflation is expected to stay sub-3% for the rest of this year, mainly on base effect but mindful of upside surprises,” the research house said in a report yesterday.
It observed that the government had implemented targeted subsidies, beginning with electricity at the start of this year whereby subsidy was given only to domestic (household) and low-voltage users vis-a-vis non-domestic (industrial, commercial) and medium/high voltage users.
This was followed by the exclusion of very high-income households from electricity subsidies at the start of the second half of 2023, and this involved those with monthly electricity consumption excess of 1,500 kilowatt-hour.
“Next is the implementation of targeted fuel subsidy in 2024 that will also end the ‘benefits’ to the high-income households,” Maybank IB said, noting the potential implication of CPI.
“At the same time, we are mindful of El-Nino-related food inflation risks, especially with the upward pressures in rice prices in recent months.
“This is attributed to global shortage in rice supply following adverse weather conditions due to El-Nino and major rice producers like India banning rice exports,” it added.
The Statistics Department last Friday revealed that Malaysia’s CPI growth was at 2% y-o-y in August, similar to the preceding month. For the eight months of 2023, inflation averaged at 2.8% y-o-y.
TA Research noted that despite the moderation in monthly CPI, there was a potential for an increase in inflation in the coming months.
In its note, the research firm said among the factors that could cause a spike in CPI in the near term were diminishing impact of the base effect, recent surge in crude oil prices, persistent weakness in the ringgit and increase in the prices of imported rice.
Nevertheless, based on its current assessment, TA Research maintained its projection for a 2023 average inflation rate at 3% y-o-y, which was in line with the government.
As such, it maintained its conviction that there would not be any further interest rate hikes by Bank Negara this year.
Similarly, Hong Leong Investment Bank Research maintained its view that the overnight policy rate (OPR) would be kept unchanged for the rest of 2023.
“While headline inflation may be impacted by rising global oil and rice prices, the impact is anticipated to be modest owing to domestic subsidies and price control measures.
“As economic activity is expected to remain soft while inflation remains on a moderate trend, we maintain our expectation for Bank Negara to keep OPR unchanged at 3% in the last 2023 monetary policy committee meeting in November,” it added.