Economists: Headline inflation 2.5-3.3pct, OPR maintained

 

Economists are forecasting Malaysia’s headline inflation for 2024 to be between 2.5 percent and 3.3 percent.

OCBC Global Market Research’s forecasted 2.5 percent, RHB Investment Bank (RHBIB) projected 3.3 percent, and MIDF Research estimated 3.2 percent.

In a statement, OCBC senior Asean economist Lavanya Venkateswaran said the 2.5 percent forecast implies some pick-up in price pressures in the coming months.

She said the inflation outlook hinges on the timeline and mechanism of fuel subsidy rationalisation.

“Notwithstanding (the rise), inflationary pressures will remain manageable. As such, we continue to expect Bank Negara Malaysia (BNM) to keep its policy rate unchanged at 3.00 percent in 2024,” she added.

Earlier today, the Department of Statistics Malaysia announced that the country’s headline inflation remained at 1.5 percent in January 2024 with the Consumer Price Index at 131.4 points against 129.5 a year earlier.

This was slightly below consensus and OCBC’s estimate of 1.6 percent as well as RHBIB’s estimate of 1.5 percent.

Core inflation eased further to 1.8 percent year-on-year (y-o-y) versus 1.9 percent in December 2023.

Meanwhile, RHBIB maintained its 2024 headline inflation projection at 3.3 percent y-o-y, taking into consideration the potential upside from the policy manoeuvres amid the fiscal consolidation plan.

“Based on our analysis, fuel subsidy rationalisation and the revision in services tax would have a more significant impact on the inflationary trajectory,” it said in its research note.

It said the magnitude of the upside risks would hinge on a few key factors: the effective date of implementation for fuel subsidy rationalisation, the quantum of prices and tariff adjustments, and the strength of second-round impacts on household spending and business costs.

On the external front, RHBIB said it remains cautious about the potential upside bias for commodity and food prices in the upcoming months.

It also opined that the Overnight Policy Rate (OPR) would likely be maintained at 3.00 percent for 2024 on the caveat that headline inflation falls in the official range of 2.1 percent to 3.6 percent.

Higher retail fuel prices

Meanwhile, MIDF Research expects a gradual pick-up in overall prices in the first half of 2024 following an increase in utility charges, implementation of a higher sales and services tax rate at 8.0 percent (except for food & beverage and telecommunications), and the 10 percent tax for low-value goods.

“In the latter half, we opine that the roll-out of fuel targeted subsidy may see higher retail fuel prices.

“Moving into 2024, we expect overall inflation rate may register at 3.2 percent on the assumption that the fuel targeted subsidy would possibly be rolled out as early as June 2024,” said the research house.

It opined the government may introduce a managed-float price mechanism for RON95 and provide cash assistance to those eligible as guided by the Central Database Hub (Padu) database.

It forecasted that BNM would keep the OPR status quo throughout 2024.

- Bernama