PETALING JAYA: With February’s consumer price index (CPI) data to be released later this week, economists are not counting out exploitative and opportunistic price increases, although they are largely predicting that inflation will remain stable.
Following January’s 1.7% and 1.8% year-on-year (y-o-y) rise in headline and core inflation respectively, experts are confident that February will likely be the same
Economist Geoffrey Williams pointed out that there are no particular inflationary factors to consider across the board.
However, it is interesting to note that following the civil servant salary adjustment last December, January’s data pointed to segments such as restaurants and accommodation as well as food and beverage being drivers for price increases.
This led Williams to remark that previous price rises did appear to show businesses could exploit positive policy developments such as higher minimum wages to pass on price hikes to consumers.
“It is not clear that this is justified on cost terms or if it reflects a lack of competition.
“It could a tacit collusion among businesses to take advantage of the situation and pass on costs.
“Also consumers are often too willing to accept hikes without comparing prices or switching to lower price items,” he pointed out.
He observed that the wide use of e-payments as opposed to cash had also played a role as consumers become less careful with their spending.
“All they have to do is just swipe their payment cards and hence pay less attention to price hikes.
“There are behavioural factors at play but in the end if consumers do not use their power to hold prices down, firms will just pass on costs and prices will go up,” said Williams.
Nouri Chatillon, Asia-Pacific economist at international trade insurer Coface, concurred with Williams that salary rises could lead to prices nudging up.
He told StarBiz that inflation could rise again, particularly due to the December civil servants’ salary adjustment, increase in minimum wages and the planned rationalisation of RON95 petrol subsidies.
However, he added that since strong external inflationary pressures have eased, any acceleration in terms of inflation should be manageable.
“The Malaysian economy is resilient, notably thanks to a sustained private consumption, which could push businesses to raise their prices.
“With Malaysia having the highest ratio of civil servants per capita globally, the significant salary increase for civil servants could lead to a substantial rise in demand, prompting businesses to profiteer.”
Meanwhile, economist and chief executive at Centre for Market Education Carmelo Ferlito noted that the inflation track has been stable in the last few months.
As such, he said inflationary pressures are likely to be driven primarily by external factors.
Of interest, Ferlito said globally, the biggest threat to worldwide inflation would emanate from the new spending plans of China but more in particular, of the European Union (EU), especially with the latter’s announcement that it intended to mobilise household savings.
For context, a specific announcement tied to this intention came from European Commission president Ursula von der Leyen last week.
She highlighted a strategy to boost competitiveness by converting private savings into investments, particularly for green and digital transitions.
It is assumed that this aligned with broader efforts detailed on the EU commission’s website.
On Feb 3, it outlined the savings and investments union plan to channel household savings into capital markets and EU projects.
The initiative reflected a push to address the EU’s financing needs by tapping into the estimated €33.5 trillion in household savings across the region.
At the same time, economist and research assistant at Ideas Malaysia Doris Liew agreed that inflation is expected to remain subdued in the coming months.
The impact of the diesel subsidy removal and the civil servant salary hike had appeared to be muted.
“Current price trends suggest that there has been no significant adjustment in the broader consumer price basket, which is predominantly driven by food and housing costs.
“This stability provides the government greater flexibility in managing fiscal policy without immediate inflationary concerns,” she said.
Furthermore, she said the contained inflationary environment creates an opportunity for the government to pursue expansionary fiscal measures in the near term, including the rationalisation of RON95 petrol subsidies or adjustments to electricity tariffs, both of which are expected to be rolled out in the second half of the year.
Echoing Ferlito’s view, she said external risks remained a factor.
“The recent depreciation of the ringgit is expected to put upward pressure on imported goods, contributing to imported inflation in the months ahead,” Liew pointed out.
“If the currency continues to weaken, the cost of essential imports such as food, fuel, and raw materials may rise, potentially eroding some of the benefits of low domestic inflation,” Liew cautioned.
Meanwhile, an economist with a foreign research house pointedly predicted the CPI value to slightly increase to 133.7 to 134 index points in February 2025, assuming a modest month-on-month increase of 0.1% to 0.3%, consistent with recent patterns and reflecting stable demand post-Chinese New Year.
He projected the headline inflation rate to range between 1.7% to 2% accounting for persistent mild pressure from food prices and subsidy adjustments, potential stabilisation or slight decline in seasonal spending pressures, and a base effect from February 2024, which had a CPI of 132.1.
“Core inflation may rise to 1.8% to 2.0% y-o-y, driven by persistent increases in service-related costs such as restaurants personal care services,” he added.
Moreover, he said with Malaysia’s export-oriented economy, global demand for goods such as electronics and palm oil affects domestic income and inflation.
“A slowdown in major markets such as China and the United States could reduce inflationary pressure, while strong demand could increase it,” said the economist.
