20220126_PLA_CNY SHOPPING_MORNING-MARKET_OUG-1_LYY_20220829115331_theedgemarkets_1

Malaysia: Easing CPI, PPI could make room for subsidy rationalisation, says CGS-CIMB economist

KUALA LUMPUR (April 25): A continued moderation of the consumer price index (CPI) this year could allow the government to ease subsidies, said CGS-CIMB.

Malaysia’s inflation, as measured by the consumer price index (CPI), fell to 3.4% year-on-year (y-o-y) in March this year, marking seven months of continued decline, from its peak of 4.7% y-o-y increase in August 2022.  

In a note on Tuesday (April 25), the research house’s economist Nazmi Idrus projected CPI growth to drop to below 3% y-o-y by mid-2023, given the implementation of Rahmah sales in local supermarkets, coupled with the setting of ceiling prices for bottled cooking oil and price control scheme (from April 15 until April 30), which will help to contain prices from rising.

He also noted that Malaysia’s producer price index for February 2023 shrank by 0.8% y-o-y — its first contraction since January 2021 — which means the incentive for producers to pass on costs to consumers appears minimal at this point.

“This would also mean that the government can finally focus on policies to correct price distortions in the market, especially subsidies not aimed at the intended target (for example electricity tariff or diesel),” Nazmi explained.

Overall, the research outfit maintained its this year inflation forecast at 3% y-o-y with upside risks, especially if the government decides to implement any targeted subsidy adjustments in the near term.

Nazmi expects the upside risk would be driven by factors such as the prices of chicken and eggs which are expected to be floated after June this year, in a bid to overcome shortages.

Another factor is the potential upward revision of the electricity tariff, with the research house estimating that higher tariffs will be aimed at domestic electric users with high volume usage from July 2023. This could raise the CPI by 20 basis points (bps) to 60bps in 2023.

Source: https://www.theedgemarkets.com/node/664503