Pic from Bloomberg
PETALING JAYA: While inflationary pressure may pick up in the later part of the year, it is likely to remain modest and manageable.
Analysts anticipate higher inflation in 2025, amid the expected RON95 petrol subsidy rationalisation, potential review in electricity base price, rising insurance premiums, higher labour costs from minimum wage hike and expanded scope of the sales and service tax, among others.
CGS International Research, for example, has forecast an inflation rate of 2.3% for this year, as compared to 1.8% in 2024.
Despite signs of moderation in prices, the research house said the inflation outlook is still vulnerable to shifts in domestic price controls and subsidy policies, as well as fluctuations in the price of commodities globally.
“Factors that could support prices in 2025 are a robust labour market, and hikes in civil servants’ salary in December 2024, in our view.
“We believe ardent price controls especially during the upcoming Ramadan and Eid season and the lack of significant near-term price pressures ensure that consumer price index (CPI) growth remains muted for much of the first half of 2025,” it said.
TA Research, on the other hand, projected an inflation rate of 2.5% to 3.5%.
“We anticipate that inflation will remain manageable in the coming months, likely staying close to the long-term average of 2% year-on-year (y-o-y), based on historical data from January 2010 to January 2025.
“However, inflationary pressures may rise slightly in February 2025, driven by demand-pull factors, such as the minimum wage increase to RM1,700 and salary adjustments for government employees,” it said.
With the inflation projection looking manageable at this juncture, TA Research said the central bank may keep its overnight policy rate unchanged at 3% this year.
“Adjustments may only be considered if inflationary pressures from subsidy rationalisation or external shocks become unmanageable in 2025.”
In January 2025, the CPI moderated to 1.7% y-o-y, matching the gain recorded in the previous month but falling 0.1 percentage points short of consensus expectations.
On a monthly basis, the CPI rose by 0.1%.
Meanwhile, core inflation rose by 1.8% y-o-y during the month. In a note, Kenanga Research said that while there were increases across all sub-components of CPI, overall inflation remained muted in January 2025 as easing food and housing prices offset rising transport, and restaurant and accommodation services.
Looking ahead, the research house added that modest upward pressure could stem from higher electricity tariffs, rising insurance premiums and wage-price pass-through effects, though overall price stability is likely.
“While external risks are growing, particularly from US President Donald Trump’s reciprocal tariff expected in early April and an uncertain geopolitical landscape, we see limited spillover in 2025, though 2026 could present a different scenario.
“With inflation stable and growth on track, Bank Negara is likely to stay on the sidelines throughout 2025.
“However, we remain cautious of potential inflation shocks or downside growth risks that could prompt a policy adjustment,” it added.
