1st September 2022 - 3 min read
Several economists and research houses have predicted that Malaysia’s inflation rate will hover between 3% to 3.3% for 2022, with more interest rate hikes to be expected soon.
Economist from CGS-CIMB, Nazmi Idrus, for instance, maintains his earlier forecast that the consumer price index (CPI) – which serves as one of the indicators of inflation – will hit 3.1% in 2022. He had previously highlighted this figure in June 2022, noting that the price momentum in Malaysia is likely to remain strong ahead. Meanwhile, his forecast for the CPI in 2023 is set at 3.2%.
Idrus also believes that a stronger inflation on a year-on-year basis is likely for August-September 2022, potentially climbing up to nearly 5% before lowering once more in the fourth quarter of the year (4Q22). This is primarily due to the expiry of various pandemic-related support, as well as low base effect.
“That said, we believe price pressure is on the downside. Producer prices showed a percentage month-on-month contraction in July this year of 2.3% (June 2022: contraction of 0.1%), likely reflecting the easing cost pressure amid the decline in global commodity prices,” Idrus explained, adding that this could ease price pressure on consumers moving forward.
Idrus also believes that Bank Negara Malaysia will continue with its agenda of rate normalisation, with a 25-basis point (bps) hike set to take place in its upcoming Monetary Policy Committee (MPC) meeting on 8 September 2022. This may be followed by another two more hikes in the first half of 2023.
Meanwhile, Maybank Investment Bank (Maybank IB) Research now predicts that the inflation for 2022 and 2023 may hit 3.3% and 4%, respectively. This is a slight dip from its earlier forecast of 3.4% (2022) and 4.1% (2023). The new forecasts take into account the impact of announced and expected rationalisation in price subsidies for essential food, fuel, and energy.
“With the upward trajectory in annual inflation rate plus stronger economic growth in 2Q22 and this year, we expect the central bank to raise the overnight policy rate (OPR) further by 50 bps to 2.75% by end-2022 (25 bps hike each at the 7-8 Sept and 2-3 Nov MPC meetings). We also expect another 25-bps hike early next year to bring the OPR back to the pre-Covid-19 level of 3% by the end of 1Q23,” Maybank IB Research further shared.
As for PublicInvest Research, it maintains its expectation of the CPI expanding by 3% year-on-year in 2022, believing that domestic economic activity will remain steady in 2Q22 as supply chain disruptions and global inflation ease. It also noted that headline inflation may climb higher during some months due to the base effect from support measures implemented in 2021.
“However, the overall readings for the year run the risk of being exceeded should supply-related disruptions be reignited. With the Russia-Ukraine war showing no signs of ending and possibly weighing on energy markets, effects are no longer expected to be as pronounced,” PublicInvest Research noted.
To note, Malaysia’s headline inflation – as measured by the CPI – rose to a higher 4.4% y-o-y in July 2022 (3.4% y-o-y in June). This is driven by rising food and non-alcoholic beverages costs. Similarly, core inflation also increased slightly last month, from 3% in June 2022 to 3.4% in July.
(Source: The Star)
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