PETALING JAYA: The inflation outlook is expected to gradually pick up in the second half of 2025 (2H25), shaped largely by domestic policy recalibrations and the eventual rationalisation of subsidies.
Analysts believe that while price pressures remain subdued for now, a turning point could be on the horizon as key fiscal reforms begin to take hold.
Maybank Investment Bank Research (Maybank IB) has cautioned that inflation risks remain skewed to the upside.
This could be due to higher sales tax rate on non-essential items like imported premium goods and wider scope of services taxes to include commercial service transactions between businesses that were previously exempted, with effect from May 1.
Additionally, there is also the RON95 petrol subsidy rationalisation and Tenaga Nasional Bhd
’s tariff review, scheduled for mid-year; potentially higher foreign labour costs due to multi-tier levies and the Employees Provident Fund contributions from the fourth quarter of 2025 (4Q25).
Kenanga Research echoed the view that domestic policies, rather than global shocks, are likely to drive inflation.
“Malaysia is largely insulated from tariff-induced inflation, leaving domestic policy shifts as the main risk.”
Key developments include the RON95 fuel subsidy review expected in July and the new electricity tariff structure under Regulatory Period 4.
Still, Kenanga Research pointed out a strategic window: “With the Brent crude oil price still low, the government has a narrow window to push through reforms without derailing price stability.”
It added: “If the rationalisation is delayed, we will revise our 2025 consumer price index (CPI) forecast down to 1.8%.”
Malaysia’s headline inflation (as measured by the increase in the CPI), in March 2025 slowed to 1.4% year-on-year – its lowest since February 2021 – due to broad-based moderation in price pressures and a decline in transport costs.
Despite the benign number, some economists warned that 2H25 could see a reversal in trend.
CGS International (CGSI) Research maintained its 2025 inflation forecast of 2.3% and noted that March marked the eighth consecutive month of year-on-year moderation.
However, the brokerage flagged several factors that could gradually lift inflation.
“Factors that will continue to support stronger prices ahead are a robust labour market revision in minimum wages and high cash transfers.
“However, the inflation outlook is still susceptible to shifts in domestic price controls and subsidy policies, as well as global commodities price fluctuations,” CGSI Research said.
“Given the government’s intention of lowering its subsidy burden, we expect CPI headline to rise gradually in 2H25, depending on the magnitude of the subsidy rationalisation,” it added.
CGSI Research said there is space for Bank Negara to loosen its monetary policy by 25 basis points (bps) to 2.75% by end-2025 amid prevailing economic uncertainties and moderate inflationary pressure.
CIMB Research, which also forecast monetary easing, attributed its outlook to softer growth and subdued demand-driven pressures.
With gross domestic product growth easing to 4.4% in 1Q25, the brokerage said it expects an overnight policy rate (OPR) cut in July.
“We anticipate that Bank Negara will cut the OPR by 25 bps to 2.75% on July 9, aimed at addressing growth concerns linked to the US-imposed trade tariffs and broader global trade uncertainties,” it explained.
