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Malaysia: Inflationary pressures likely to stay elevated
PETALING JAYA: Inflationary pressures are expected to stay elevated in the near term.
UOB Global Economics and Markets Research said headline inflation, as measured by the change in consumer price index (CPI), would likely stay elevated in the near-term before decelerating this year.
“The government is prioritising measures to reduce the cost of living by addressing demand and supply factors. This will be one of the core issues in focus during the retabling of Budget 2023 in February.
“The outcome on inflation will depend on whether the new government implements targeted subsidies on a gradual, staggered, or delayed basis next year,” it said.
Given that electricity tariffs have been kept unchanged for households and small businesses until mid-2023, it said the government would be mindful of upside inflation risks particularly if blanket subsidies were removed.
Under a potential scenario of gradual fuel price hikes every quarter which could lift headline inflation to 4% in 2023, this would impute the direct impact from fuel without the potential spillover to prices of other goods and services, the research house said.
“Assuming that fuel prices are unchanged in the first half of 2023 and then gradually raised in the second half, headline inflation could be capped at 3.5%.
“We have not imputed any removal of subsidies into our inflation forecasts for now. Thus, our full-year inflation stands at 3.5% for 2022 compared with the Finance Ministry’s estimation of 3.3%, and 2.8% for 2023 against the ministry’s projection of 2.8% to 3.3%.
“Given that headline inflation remains elevated and core inflation shows no signs of easing amid the ongoing demand side pressures particularly during the year-end festive period, we expect the overnight policy rate to be hiked by another 50 basis points (bps) to 3.25% in the first quarter of 2023 and thereafter staying unchanged for the rest of the year,” it said.
The research house said the next 25 bps rate hike would be likely at the monetary policy meeting from Jan 18-19 followed by another 25 bps hike on from March 8-9.
Headline inflation was held at 4% year-on- year (y-o-y) for the second month in November (October: 4%) to bring year-to-date inflation to 3.4%.
It has been elevated at or above the 4% level for five straight months since July.
On a month-on-month basis, it picked up to 0.3% (October: 0.2%).
Core inflation, which measures changes in prices of all goods and services excluding volatile items of fresh food and administered price goods, accelerated to 4.2% y-o-y (October: 4.1%) to hit another record high.
Year-to-date core inflation averaged at 2.9% in the January to November period compared with 0.7% in the same period a year ago.
Source: https://www.thestar.com.my/business/business-news/2023/01/02/inflationary-pressures-likely-to-stay-elevated