PETALING JAYA: Malaysia’s inflation outlook remains cloudy for next year, awaiting the post-15th general election government’s approach on the fuel subsidy mechanism, says MIDF Research.
“If the new government keeps status quo on the fuel subsidy, hence headline inflation is expected to hover between +2.3~2.5% for 2023. If the subsidy mechanism is abolished entirely, headline inflation could touch +10% while gradual increases in domestic retail fuel prices would result in +4~5% for next year,” it said in a report.
Supply-push factors on inflation are expected to soften moving into 2023, underpinned by appreciation of US dollar-ringgit, moderation in food prices, further easing in global supply chain pressure and lower commodity prices, it noted.
The research house kept its average consumer price index (CPI) forecast at +3.0% for 2022. In the environment of elevated global commodity prices, inflationary pressure in Malaysia is affected via higher food inflation.
“We expect food price growth to record at +5.5% this year among others attributed by further depreciation of US dollar-ringgit. As for fuel subsidy, we believe the government to maintain current mechanism at least until end of this year. With domestic demand firming, we upgrade our headline CPI forecast slightly by +0.2% point to +3.0% for 2022.”
As domestic demand continued to strengthen, the core inflation rate touched a new peak again at +4.0% year-on-year (y-o-y) in September 2022. On a sequential month basis, core prices still recorded growth of +0.3%.
“With this upbeat momentum, we believe Bank Negara Malaysia is very likely to raise the Overnight Policy Rate by another +25bps in the last MPC meeting for this year, in November 2022,” said MIDF.
On the flip side, headline inflation softened slightly to +4.5% y-o-y. Non-food inflation and food inflation eased marginally to +3.3% y-o -y and +6.8% y-o-y respectively, compared with the previous month.
“We had expected that inflationary pressure in Malaysia to moderate after August 2022 especially with the slight correction in global commodity prices and easing of supply chain pressures domestically and regionally.”
Moving forward, MIDF expects Malaysia’s domestic food inflation to decelerate at a moderate pace in the second half of 2022 following the slight correction of global commodity prices particularly agriculture-related prices and improving supply chain in both regionally and domestically.
“We view inflationary pressure stemming from raw materials and intermediate inputs to further soften in coming months, thanks to correction in commodity prices and easing supply chain pressures. Moving forward, we opine price pressures could ease in anticipation for improved supply of intermediate materials following decline in the Baltic Dry Index in August 2022, signalling signs of easing pressure on the global supply chain.
“On another note, softening producer price index inflation hint positive signs for Malaysia’s CPI to cool off in the fourth quarter of 2022,” it said.
Source: The Sun Daily
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