PETALING JAYA: Inflationary pressure in Malaysia is expected to rise towards the second half of this year on improving aggregate demand amid better economic prospects.
In addition, the impending fuel-subsidy rationalisation is expected to push up the country’s inflation, as measured by changes in the consumer price index (CPI).
According to TA Research, while the timing of the future hike in diesel prices remains uncertain at this juncture, the potential increase could put pressure on the current inflation rate.
“We would like to highlight that the CPI could increase by more than 2% if the diesel subsidy removal is implemented soon,” the research house said in recent report.
Pending details on the fuel subsidy rationalisation, TA Research maintained its base-case average CPI projection at 2.9% for 2024.
This remained within Bank Negara’s 2024 CPI forecast range of 2% to 3.5%.
In 2023, Malaysia’s CPI averaged at 2.5%.
Data from the Statistics Department last week showed that the country’s CPI remained steady in April, rising 1.8% year-on-year (y-o-y), similar to the preceding month.
Overall, the headline CPI averaged at 1.7% y-o-y for the first four months of 2024.
“We expect the inflation rate for May 2024 to remain manageable, likely similar to previous readings.
“This stability can be attributed to stagnant growth in transportation costs,” TA Research said.
“We anticipate a gradual uptick in the CPI, moving forward, most likely in the second half of the year.
“Other factors contributing to this forecast include the build-up of demand-side pressure in conjunction with improved growth prospects.”
Malaysia’s economy grew 4.2% in the first quarter of 2024 (1Q24).
Expecting the positive momentum to persist into the next quarter, TA Research said growth would likely come in at 5.5% in 2Q24.
“The current inflation situation in Malaysia appears to be well-managed and there seems to be no immediate pressure from the central bank to increase interest rates.
“The current rate stands at 3%, and we believe the central bank is likely to maintain it,” TA Research said.
Meanwhile, Hong Leong Investment Bank Research (HLIB Research) expects minimal effect from the impending fuel-subsidy rationalisation.
“The government’s recent move to rationalise fuel subsidies starting with diesel in Peninsular Malaysia will likely see limited impact due to the fleet card mechanism, targeted cash transfers, and diesel making up only 0.2% of the CPI basket,” it said.
“It is worth noting there has been no announcement on the implementation date or quantum of the cut yet,” it pointed out.
HLIB Research maintained its CPI forecast at 2.6% for this year, pending further information on the proposed subsidy rationalisation measures.
