Core inflation is also expected to moderate, but remaining above its long-term average.
PETALING JAYA: Headline inflation is expected to remain moderate amid contained cost pressures from easing global supply conditions.
Price pressures from tax changes and utility tariffs are assessed to have a marginal impact on headline inflation, according to the “Economic and Monetary Review 2023” report.
Additionally, the impact of exchange rate depreciation on inflation will be contained by administered prices and relatively stable firm pricing behaviour.
Core inflation is also expected to moderate, but remaining above its long-term average. Limited demand pressures, stable near-term sentiments on economic conditions and wage growth that is in line with productivity increases will likely contain upward pressure to underlying inflation.
According to the report, the inflation outlook remains highly subject to upside risks due to potential price adjustments on food and energy items, as well as external pressures from exchange rate and global commodity price developments.
It noted that the direct impact on headline inflation will likely dissipate within a year, but there are upside risks from knock-on effects and wage-price dynamics. However, the immediate effect will vary based on the size, timing and extent of the targeted aid.
On the other hand, downside risks to inflation outlook emanate from weaker global growth weighing on commodity prices and cost pressures.
Headline inflation slowed down in 2023 compared to its peak in 2022, averaging 2.5% for the year (compared to 3.3% in 2022). The moderation was driven by broad-based easing in both core and non-core inflation.
Lower inflation for fuel (2023: 1.6%; 2022: 5.1%) and food and non-alcoholic beverages (2023: 4.8%; 2022: 5.8%) were among the main drivers contributing to softer inflation.
