Malaysia's 2024 headline inflation to accelerate on policy measures, geopolitical tensions — economists

KUALA LUMPUR (Feb 23): Economists anticipate Malaysia’s headline inflation for 2024 to pick up due to the government’s fiscal consolidation and supply chain disruption from ongoing geopolitical tensions.

In a note on Friday, RHB Research anticipated that the revision of service tax and fuel subsidy rationalisation would have a more significant impact on the inflationary pressure.

"The increase in diesel and RON95 prices, via the fuel rationalisation measures is estimated to increase the headline consumer price index (CPI) by 0.25% to 0.35%, based on a conservative 5% hike in retail prices," the research house said.

On the other hand, RHB opines that adjustments in water and electricity tariffs will only have limited impact on inflation, given their modest quantum and relatively low weight in the CPI basket.

Likewise, UOB economists suggested that headline inflation may experience pressure driven by secondary effects following the implementation of a progressive wage mechanism starting June 1.

On the external factor, the research houses remained cautious of a potential rise in commodity and food prices in the coming months, spurred by geopolitical tensions.

RHB Investment Bank pointed out that China’s economic resurgence in 2024 could boost demand and prices for commodities, such as crude oil and base metals.

Nevertheless, the near-term inflationary pressures are likely to remain under control, according to OCBC Global Market Research in a note on Malaysia’s January CPI on Friday.

“The inflation outlook hinges on the timeline and mechanism of fuel subsidy rationalisation. We forecast 2024 headline inflation at 2.5%, implying some pick up in price pressures in the coming months.

“Notwithstanding, inflationary pressures will remain manageable. As such, we continue to expect BNM [Bank Negara Malaysia] to keep its policy rate unchanged at 3.00% in 2024,” said the research arm of OCBC Bank.

Earlier, the Department of Statistics Malaysia (DOSM) reported that Malaysia’s headline inflation remained steady at 1.5% in January 2024, with the CPI standing at 131.4 points, compared with 129.5 in the same month last year.

Core inflation, which excludes volatile items such as fresh food and price-controlled goods, saw a slight decrease to 1.8% year-on-year from 1.9% in December.

In January, inflation rates moderated across most categories, with the exceptions of utilities (rising 1.6%) and transport (up 0.3%). Nevertheless, the decline in food prices and most service charges helped mitigate the impact of higher costs for sewerage collection and transportation, relative to the previous year.

Most research houses projected Malaysia’s headline inflation rate to range between 2.5% and 3.3% in 2024, while the expectation is for BNM to maintain its overnight policy rate at 3% throughout the year.

Read also:Malaysia’s inflation remains steady in January — DOSM