Un the environment of elevated global commodity prices, inflationary pressure in Malaysia is affected via higher food inflation. Analysts expect food price growth to record at 5.5 per cent this year among others attributed by further depreciation of US dollar-ringgit — Bernama photo
KUCHING: According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), in the environment of elevated global commodity prices, inflationary pressure in Malaysia is affected via higher food inflation.
“We expect food price growth to record at 5.5 per cent this year among others attributed by further depreciation of US dollar-ringgit,” MIDF Research said.
“As for fuel subsidy, we believe the government to maintain current mechanism at least until end of this year. With domestic demand firming, we upgrade our headline CPI forecast slightly by 0.2 per cent point to three per cent for 2022.”
Meanwhile, RHB Investment Bank Bhd (RHB Investment Bank) maintained its headline CPI inflation forecast at 3.4 per cent year on year (y-o-y) for 2022. For 2023, the research firm expected the inflation rate to soften slightly to three per cent.
“With the potential adjustments in fuel and food subsidies, the peaking of inflation could be delayed to some time in 2023,” RHB Investment Bank said.
“The trajectory of the inflation moving forward would be very much depend on the timing and the scale of the subsidy adjustment, with the balance of the risks tilted to the upside for our 2023 inflation projection.”
MIDF Research highlighted that moving into 2023, supply-push factors on inflation are expected to soften among others underpin by appreciation of US dollar-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-15th General Election (GE15) government’s approach on fuel-subsidy mechanism,” the research arm opined.
“If the new government keep status quo on the fuel subsidy, hence headline inflation to hover between 2.3 to 2.5 per cent for 2023. If the subsidy mechanism is abolished entirely, headline inflation could touch 10 per cent while gradual increase in domestic retail fuel prices would result into four to five per cent for next year.”
On another note, RHB Investment Bank expected its peak overnight policy rate (OPR) forecast range of three per cent to 3.5 per cent to be materialised sooner rather than later by the first half of 2023 (1H23). The research firm’s end-2022 OPR forecast has been projected at 2.75 per cent.
“Robust domestic demand coupled with low real interest rates would continue to fuel the core inflation pressures while external pressures from a hawkish US Federal Reserves OPR normalisation will continue in upcoming months.”