Country’s headline inflation expected to moderate

PETALING JAYA: Malaysia’s headline inflation appears to be moderating on a diminishing base effect and some normalisation in commodity prices.

However, there remains an upside risk to the consumer price index (CPI), a gauge of inflation, due to the government’s subsidy rationalisation plans next year.

CGS-CIMB Research presently kept its 2024 CPI growth at 2.5%, pending greater clarity on the government’s subsidy rationalisation plans. It expected 2023 CPI growth to be 2.8%.

“To date, the government has only mentioned possible adjustments to electricity tariffs, as well as fuel subsidies, without any concrete details on the quantum and timing of these changes.

“As a result, any forecasts made will be highly dependent on any changes to government policy going forward,” the brokerage explained.

CGS-CIMB Research’s scenario analysis showed annual 2024 CPI could reach 5.6% if the government decides to fully abandon fuel subsidies altogether, remove the electricity tariff rebate for the top 10% of households and remove price caps on controlled food items, such as eggs.

“That said, drastic measures such as these are unlikely, in our opinion, given their potential impact on the economy.

“What is certain, however, is the upward revision of service tax on selected items, which we estimate would lead to a 10 basis points increase in annual 2024 CPI,” it said.

Maybank Investment Bank (Maybank IB) Research projected 2024 CPI to increase 3%.

The brokerage said it maintained its 2024 CPI projection for now pending more information and details on Budget 2024, especially the removal of price control and subsidies for eggs and fuel.

Other measures included the service tax hike from 6% to 8% (except services like food and beverage and telecommunications) plus expansion of the services tax base (to include logistics, non-financial brokerage, underwriting and karaoke).

Also, increase in excise duty for sugar-sweetened beverages; imposition of excise duty on chewable tobacco products at 5%; and reduction in entertainment duty.

“With the first 10 months 2023 headline inflation rate at 2.7%, we maintain our 2023 inflation rate forecast at 2.6% as base effect is expected to keep monthly inflation rate sub-3% in November to December 2023,” Maybank IB Research said.

Malaysia’s CPI growth moderated to 1.8% in October from 1.9% in September and 2% in August.

AmBank Research noted both inflation and core inflation continue to trend down, and it expected this to continue up until the end of the year.

“Inflation in 2024 is expected to fall within a range of 2.5% to 3.5%, considering the effects of subsidy rationalisation and the impact of the services tax increase,” it said.

“However, there is an upside risk to this outlook if the scope of rationalisation extends to RON95 fuel,” it added.

Public Investment Bank Research said based on Bank Negara’s projection, headline and core inflation would likely sustain a modest trend, barring any significant cost shocks.

“However, potential risks to the inflation outlook hinge significantly on alterations to domestic policies concerning subsidies and price controls, as well as fluctuations in global commodity prices and financial market dynamics,” it said.

“Inflation trajectory for 2024 is poised to exhibit an upward trajectory. This anticipation is contingent upon the release of comprehensive details and timeline pertaining to Budget 2024 measures, particularly with respect to subsidy rationalisation and prospective increases in indirect taxes,” it said.

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