CGSI Research observed that the rise of prices in May was mainly attributed to higher growth in housing and utility costs at 3.2%.
PETALING JAYA: Economists are forecasting inflation to be on the uptick for the second half of 2024 (2H24), underpinned by steady domestic demand and the government’s progress in the implementation of its targeted subsidy mechanisms.
Headline inflation had inched up to 2% year-on-year (y-o-y) in May, although core inflation was kept at 1.9%, as CGS International Research (CGSI Research) observed that the rise of prices in May was mainly attributed to higher growth in housing and utility costs at 3.2%, propelled by an increase in housing rentals and water supply prices.
“The increase in water expenditure price was due to the lingering base effect from the tariff hike in February this year, as well as the recent rise in water tariff rates for Perak domestic users,” said the research firm.
It pointed out that a rise in transport inflation, stemming primarily from a y-o-y increase in Brent crude oil prices to US$82 a barrel last month, have also paved the way for headline inflation to edge north.
As such, CGSI Research is anticipating transport costs will continue to increase in the near term following the government’s diesel retail price revision earlier this month.
On the three sen reduction in price for Grades A, B and C chicken eggs, the research unit believes the impact will be minor as eggs constitute only around 0.4% of the overall consumer price index (CPI) weight.
“The price reduction is timely as it offers a slight buffer against the increase in diesel prices. The diesel price hike could potentially add 10 basis points for both 2024 and 2025 CPI annual growth,” it added.
Looking ahead, it believes inflationary pressures will slowly build up towards the latter part of the year with the potential implementation of the subsidy re-targeting for RON95 fuel, anticipated to take place in 2H24, which will likely have a major impact on consumers and businesses.
On top of that, the potential implementation of the high-value goods tax that may be tabled in the current Parliament session, as well as a review of electricity tariffs in 2H24, also led CGSI Research to believe CPI growth on a y-o-y basis may have bottomed out.
UOB Global Economics & Markets Research concurred with the prediction of higher prices, moving forward, pointing out in its report that in May, there were 57.8% or 331 out of 573 items that recorded price increases.
“Out of these, 320 items registered a price hike of less than or equal to 10%, while a total of 136 items showed a price decline,” it said.
It said the annual growth in May’s CPI was mainly lifted by costlier non-food items and services, as non-food price inflation jumped to a 15-month high of 2.% from 1.7% in April, while services inflation hit a seven-month high of 2.3%.
The research outfit noted that services inflation was also higher than its 2016-2023 long-term average level of 2.2%, and averaged 2.1% in the first five months of 2024.
Both UOB Global Economics & Markets Research as well as CGSI Research have pinned Malaysia’s forecast inflation rate for the whole of 2024 at 2.6%, while also projecting that with prices expected to go up, Bank Negara would keep the overnight policy rate unchanged.
