Inflation predictions for Malaysia are all over the place, but most experts agree that slower economic growth and steady commodity prices will keep prices stable for the foreseeable future. The annualised rate of increase in March’s Consumer Price Index (CPI) was 3.4%, down from 3.7% in February. The year-over-year increase in the Core CPI was 3.8% in March, down from 3.9% in February. The slight increase in food inflation from 7% y-o-y in February to 6.9% y-o-y in March was cited by Public Invest Research as the main reason why the CPI growth rate in March was lower than market expectations of 3.6%.
According to a recent assessment by a respected research firm, “in the midst of heightened economic uncertainty,” the government’s launch of the Menu Rahmah project on January 31 “has emerged as a critical step towards mitigating the escalating costs of living.” The implementation of the Imbalance Cost Pass-Through mechanism in Peninsular Malaysia has led to an increase in power tariffs across industrial and commercial sectors, as reported by Public Invest. However, the annual rate of inflation for lodging and dining out rose to 7.2% in March, from 7.4% in February.
“We believe that a potential announcement on electricity tariff revisions is anticipated in the second half of 2023 (2H23),” the research firm said. The slowdown in transport inflation increase, as reported by Public Invest Research, parallels the drop in Brent crude oil prices. Brent crude oil fell to $78.50 (RM349) per barrel in March, a decrease of 32.1% from February’s price. The research firm found that the average price of RON97 dropped by 10.2% year over year in March, to a low of RM3.35 a litre.
Public Invest Research forecasts that headline inflation will be between 3.5% and 3.75% for the whole of 2018. However, it also warn that its prediction could be impacted by the introduction of price controls or changes to retail oil price ceilings. Although GDP will decline in 1H23, substantial inflation pressures are projected to endure in the foreseeable future. Due to falling commodity prices and the possibility of a switch to a more targeted subsidy plan later in the year, the government has decided to invest RM58.6 billion this year for subsidies, down from RM67.4 billion in 2022.
Another 0.45-0.75 percentage points per year would be added to inflation, according to the research firm’s estimates, if fuel subsidies were eliminated for the Top 20 income group (which accounted for 35% of all gasoline subsidies in 2022). Headline inflation is expected to remain on the rise this year, supported by rising domestic demand, according to research conducted by Hong Leong Investment Bank. The 3.1% CPI prediction for 2023 was not changed. “Risks to the inflation outlook also remain titled to the upside, stemming from volatile global commodity prices and potential changes in government policy on subsidies and price controls,” the research firm warned.
Meanwhile, CGS-CIMB Research anticipates that the price control scheme for Hari Raya Aidilfitri (until April 30) will keep CPI contained in April this year, as it is in sync with the Payung Rahmah effort. By midway through 2023, the research firm expects CPI to fall below 3% year over year.
The government plans to float the prices of chicken and eggs in June in an effort to alleviate shortages. The price of fresh produce may increase as a result of this. “The domestic (residential) high-volume users of electricity may see a revision upward in July due to the government’s goal to lessen its subsidy burden. We estimate that an adjustment to electricity tariff could raise CPI by about 20 to 60 basis points in 2023,” the research firm said.
The inflation prognosis is particularly vulnerable to swings in the ringgit and lengthy supply chain disruptions, according to TA Research, which predicted an inflation rate of roughly 3.5% y-o-y in April and headline inflation at 3%. Our anticipation of lower transport costs is the primary factor supporting this projection (3.5%). While we expect a minor increase in demand for food-related expenditures throughout the holiday season, we are nevertheless remaining cautious about the sector’s performance. According to the research firm, “headline inflation is expected to remain manageable in 2023.”