KUALA LUMPUR: Malaysia's inflation outlook is expected to remain subdued for next year, awaiting the post 15th General Election (GE15) government's approach on fuel subsidy mechanism, MIDF Research said.
For 2022, MIDF Research upgraded its headline consumer price index (CPI) forecast slightly by 0.2 per cent to 3.0 per cent following firming domestic demand.
"In the environment of elevated global commodity prices, inflationary pressure in Malaysia is affected by higher food inflation.
"We expect food price growth to record at 5.5 per cent this year among others attributed to further depreciation of US-ringgit.
"As for fuel subsidies, we believe the government will maintain the current mechanism at least until the end of this year," it said in a note.
Moving into 2023, MIDF Research said supply-push factors on inflation were expected to soften among others, underpinned by appreciation of US dollar against the ringgit, moderation in food prices, further easing in global supply chain pressure and lower commodity prices.
"However, Malaysia's inflation outlook remains cloudy for next year, awaiting the post-GE15 government's approach on fuel subsidy mechanism.
"If the new government keeps the status quo on the fuel subsidy, then headline inflation will hover between 2.3-2.5 per cent for 2023.
"If the subsidy mechanism was abolished entirely, headline inflation could touch 10 per cent while gradual increase in domestic retail fuel prices would result in 4. 0-5.0 per cent for next year," it said.
Core inflation rate touched a new peak point again at 4.0 per cent year-on-year (YoY) in September.
On sequential month basis, core prices still recorded growth of 0.3 per cent.
"With this upbeat momentum, we believe Bank Negara Malaysia is very likely to raise the Overnight Policy Rate by another 25 basis points in the last Monetary Policy Committee meeting for this year, in November," it said.
On the flip side, headline inflation softened slightly to 4.5 per cent YoY.
Non-food inflation and food inflation eased marginally to 3.3 per cent YoY and 6.8 per cent YoY respectively, as compared to the previous month.
The firm expects inflationary pressure in Malaysia to moderate after August especially with the slight correction in global commodity prices and easing of supply chain pressures domestically and regionally.
It added that as a net-food importer, depreciation of ringgit against the greenback by 8.3 per cent YoY in September had partially caused the food inflation spike.
With the US Federal Reserve set to raise its funds rate higher than expected, the firm expects the ringgit to stay in a weakening trend at least until the fourth quarter of the year.
"Moving forward, we expect Malaysia's domestic food inflation to decelerate at moderate pace in the second half of this year following the slight correction of global commodity prices particularly agriculture-related prices and improving supply chain in both regionally and domestically," it said.
For global inflation, the firm believes it will soften modestly in 2H22 and 2023 underpin by slight correction of commodity prices and improving global supply chain especially related to food products.
Source: https://www.nst.com.my/business/2022/10/843199/inflation-malaysia-remain-subdued%C2%A0