PETALING JAYA: The country’s headline and core inflation are expected to pick up pace in 2025 from a combination of the RON95 subsidy rationalisation measure, the broadening of the sales and service tax, civil service wage increases, rise in the minimum wage and wider implications of incoming US president Donald Trump’s imposition of across-the-board tariffs on imports to the United States.
Economists have largely anticipated higher prices for 2025, with most also cautioning on the external risks from Trump’s threatened tariff measures.
This followed a largely benign November inflation data released late last week showing headline inflation edging lower to 1.8% year-on-year compared to October’s 1.9% rise while core inflation, excluding volatile food and fuel prices, remained unchanged for a third month as prices rose 1.8%.
The November headline inflation data came in lower than market expectations of a 2.1% rise, with TA Research noting that inflation in December may deviate from the stable trend due to higher consumer spending as households allocate more for discretionary items and services due to the year-end holidays and celebrations.
Malaysia’s headline inflation has largely remained in the 1.8% to 2% band since February while Bank Negara has maintained the forecast for headline inflation this year and next at 2% to 3.5%.
On a month-on-month basis, headline inflation contracted 0.1% mainly due to declines in prices for durable goods and services, which CIMB Securities attributed to year-end promotions for cars and technology gadgets, which saw month-on-month price contractions.
“The forces of special deals and promotions may continue to play out in December, while the rainy season and seasonal demand lift prices of fresh produce.
“The consumer price index or CPI in December rose by an average of 0.2% month-on-month between 2014 and 2023, pointing to headline inflation of 1.8% for December 2024, slightly lower than our full-year forecast of 1.9%,” it added.
Kenanga Research expects a combination of domestic policies, including the potential RON95 subsidy adjustment in mid-2025 together with the minimum wage hike and higher civil service salaries to raise inflation up to 2.7%.
“Externally, Trump’s tariff policies are likely to serve as a bargaining tool, but if implemented, they could temporarily drive-up prices. Over time, however, China’s export redirection may contribute to a broader deflationary effect across the region,” it said.
While Kenanga Research expects Bank Negara to maintain the benchmark overnight policy rate (OPR) at 3% on stable inflation and growth for 2025, it remains watchful for potential inflation surprises or growth challenges that might prompt a policy adjustment.
CIMB Securities said demand-pull pressures from measures supportive of private consumption may be inflationary while at the same time contribute up to 0.4% to GDP growth and raising prospects of an OPR hike.
