PETALING JAYA: Malaysia’s inflation levels are expected to rise at a speedier pace in 2025, on the back of increased wages, higher economic growth and rollout of measures related to the recently announced Budget.
Founder and director of Williams Business Consultancy Sdn Bhd and economist Geoffrey Williams said he expects several factors to affect inflation growth levels for next year.
“This includes excess economic growth of 5% for 2025, which is above the underlying growth potential.
“We will also see an exchange rate effect and perhaps some policy effects from higher civil service pay, minimum wage and the RON95 subsidy rationalisation in the second half of 2025,” he told StarBiz.
Nevertheless, Williams thinks inflation next year will remain in the 2% to 2.5% range, or below.
CIMB Treasury and Markets Research also said 2025’s inflation outlook will be “biassed to the upside.”
“The inflation rate is likely to rise in 2025 due to the planned rollout of measures announced in Budget 2025, such as an increase in the excise duty on sugar-sweetened beverages from Jan 1, 2025 and the minimum wage hike to RM1,700 from Feb 1, 2025.
Additionally, it said the increase in the sales tax on non-essential goods, alongside an expansion in the scope of the service tax from May 1, 2025, as well as the retargeting of RON95 subsidies to exclude foreigners and top 15% (or T15) consumers by mid-2025, will also affect inflation.
“Our inflation forecast of 2.6% for 2025 remains intact, with room to accommodate inflation upside due to tax measures and wage increases.
“Given the inflation risk, as well as solid growth momentum that is underpinned by a stronger-than-expected advanced third quarter 2024 (3Q24) gross domestic product estimate of 5.3%, we expect Bank Negara to maintain the overnight policy rate (OPR) at 3% next month.”
TA Research noted that the higher minimum wage leads to increased disposable income for low-wage earners, which boosts consumer demand.
“As workers have more spending power, they are likely to spend more on goods and services, creating greater demand within the economy.
“This increased demand can result in demand-pull inflation, where the rising consumer demand outstrips the supply of goods and services, pushing prices higher.”
Malaysia’s headline inflation softened to 1.8% year-on-year last month, owing to lower transport costs, muted utilities and food costs.
Economists expect inflation levels to remain manageable for the remaining months of the year.
Williams said there is nothing that should cause a spike in inflation in 4Q24.
“The strength of the ringgit might have an effect but this will be spread out over many months. So we expect inflation around or below 2% in each month and overall, at the same level for the year.”
Centre for Market Education chief executive officer Carmelo Ferlito also concurs with this outlook.
“I do not expect big changes and I see – for the time being – a stable value at around 2%,” he said.
MIDF Research in a report said it is revising its 2024 inflation forecast lower to 2% from 2.3% previously, on the back of the targeted RON95 subsidy which will be rolled out in the middle of next year.
“We expect inflation to remain stable in the coming months with no hike in RON95 petrol price this year.
“For 3Q24, headline inflation was unchanged at 1.9% year-on-year, with the one-off diesel price hike having limited upside pressure to overall consumer price index.
“In view of the stable inflation and no significant demand pressures, we foresee OPR will be kept at 3% this year and going into next year, as the current rate is deemed to be normal for Malaysia and supportive of sustainable economic growth.”
TA Research said it expects the inflation rate in the upcoming months to remain manageable, aligning with the long-term average of 2% year-on-year.
“For 2024, we anticipate inflation to rise by 2% year-on-year, as the subsidy rationalisation will only take effect in mid-2025. Year-to-date, the inflation rate has averaged 1.8% year-on-year.”
