PETALING JAYA: Risks of higher inflation have heightened in 2025, especially for food, healthcare, transport and electricity.
An economist, however, argued that there was no “compelling reason” to hike interest rates against rising price pressures, pointing out that inflation remains manageable.
After two straight years of moderating inflation rates since 2022, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said headline inflation could rebound this year.
This is due to, among others, the possible upward adjustment in RON95 petrol prices and electricity tariffs as well as the impact from the wider scope of the sales and service tax, Mohd Afzanizam told StarBiz.
“The upward adjustments are very much due to changes in policy and do not reflect the demand condition.
“In fact, we foresee consumers and businesses to be more cautious, and therefore, the demand may not be the source of higher inflation.”
Bank Muamalat projects Malaysia’s headline inflation rate in 2025 at 2.5%. In 2024, the rate was 1.8%.
At 2.5%, Mohd Afzanizam said the inflation will revert to the long-term average.
“Assuming that the higher inflation rate would materialise, the real interest rate is still positive.
“On that note, Bank Negara’s monetary policy is not too accommodative and therefore, another reason why we think raising the overnight policy rate (OPR) may not be the best option to deal with inflation in the current context,” he said.
Yesterday, in its first monetary policy meeting for this year, Bank Negara kept the OPR unchanged at 3%.
This was in line with market expectations.
Meanwhile, economist Geoffrey Williams anticipates some inflationary pressures in 2025, caused by higher domestic demand.
However, he does not foresee a spike in inflation.
“This would be general inflation and likely quite muted. There would be no particular pressures on interest rates,” said Williams.
Mohd Afzanizam added that the introduction of the targeted RON95 petrol subsidy, likely in the second half of the year, will contribute to price pressure in the transport segment.
Nevertheless, the segment only accounts for 5% of the consumer price index (CPI).
“Apart from that, our dependence on foreign sources for agri-food would mean that food prices will stay elevated as the ringgit could be weaker in the near term.
“Health and electricity could also potentially contribute to an elevated level of inflation this year.
“Not to mention the behaviour of businesses which tend to pass the additional cost to the final consumer and households are generally a price taker,” according to Mohd Afzanizam.
The Statistics Department reported yesterday that Malaysia’s inflation moderated to 1.7% in December 2024, lower than forecast, with slower increases in the cost of personal care, social protection and miscellaneous goods and services, among other groups.
The country’s CPI in December showed slower expansion as compared to 1.9% in the previous month of November, but remained higher than the 1.5% increase from a year earlier in December 2023.
Analysts polled by Reuters had projected an inflation rate of 1.8%.
Meanwhile, core inflation increased slower at 1.6% in December 2024 as compared to 1.8% in November 2024.
According to the Statistics Department, there were slower cost increases in the recreation, sport and culture (1.7%); health (1.1%); and furnishing, household equipment and routine household maintenance (0.4%) groups.
However, there was a faster speed of inflation for restaurant and accommodation services (2.9%), and food and beverages (2.7%).
The food and beverage group, which contributes to 29.8% of the total CPI weight, showed a 2.7% increase in December.
This was in part contributed by a 0.9% increase in the food at home subgroup due to the increase in the cost of vegetables.
The food away from home subgroup showed an increase of 4.8%, the same as in the previous month.
For transport, inflation came in at 0.4%.
The subgroup of purchase of vehicles, however, declined at 0.9% due to the price reduction offered as rebates to new car buyers.
In a statement, Chief Statistician Datuk Seri Mohd Uzir Mahidin pointed out that most states recorded inflation below the national inflation level of 1.7%.
However, inflation for five states were above the national inflation level, namely, Penang (2.6%), Pahang (2.3%), Selangor (2%), Johor (1.8%) and Sarawak (1.8%).
All states registered an increase in the inflation of food and beverages.
The highest rate was recorded by Selangor at 4.1%, followed by Kuala Lumpur (3.1%), Johor (3%), Terengganu (2.9%) and Putrajaya (2.9%).
Meanwhile, other states showed an increase below the national inflation of food and beverages of 2.7% in December 2024.
Inflation for the fourth quarter of 2024 increased 1.8% as compared to 1.9% in the third quarter.
As for quarter-on-quarter comparison, Malaysia’s inflation showed an increase of 0.2%, while core inflation increased slower at 1.6% in December 2024.
The increase was due to personal care, social protection and miscellaneous goods and services (3.2%); recreation, sport and culture (1.7%) and health (1.3%).
In comparison to inflation in other selected countries, inflation in Malaysia was lower than inflation in Vietnam (2.9%), the Philippines (2.9%) and South Korea (1.9%).
However, the rate was higher than Indonesia (1.6%), Thailand (1.2%) and China (0.1%).
