PETALING JAYA: Economists in general are predicting headline inflation to hover between 1.8% to 1.9% for the whole of 2024, while forecasting price increases to be on the uptick in 2025.
The Statistics Department reported last Friday that headline inflation for October saw a marginal increase to 1.9% year-on-year (y-o-y), from the 1.8% seen two months ago, which was largely due to the increased prices for food, personal care, as well as miscellaneous goods and services.
For the year up to October, headline inflation was at 1.8%, which UOB Global Economics and Markets Research (UOB Research) said was slightly lower than its estimation of 1.9% for the whole of 2024, adding that consumer price index (CPI) pressures should be manageable, though tilted to the upside.
“For 2025, our inflation projection is at 2.3%, pending details of further subsidy rationalisation, especially for fuels.
“Potential demand-led inflation pressures, the implementation of Donald Trump’s inflationary policies, commodity prices and currency volatility could also be wildcards to the overall inflation outlook in 2025,” said the research house.
It said, apart from the impending fuel-subsidy removal, other domestic policies that will be monitored for their effects on prices include a broader sales and service tax (SST) from May next year, higher minimum wage from February 2025, Employees’ Provident Fund contributions for foreign workers, and the sugar tax hike in January.
Kenanga Research said it largely has the same outlook for 2025, commenting in a note to clients yesterday that geopolitical tensions and worsening climate impacts could heighten inflationary pressures, compounded by domestic drivers such as broad-based salary increases and the RON95 fuel subsidy rationalisation.
Of note however, it said these upward pressures may be offset by lower oil prices, underpinned by subdued global oil demand, the unwinding of supply cuts from the Organisation of the Petroleum Exporting Countries (Opec), and Trump’s push for expanded US drilling.
“Lower energy costs could provide the government with greater flexibility to advance fiscal consolidation efforts without fuelling inflation,” Kenanga Research said.
Meanwhile, CGS International Research (CGSI Research) said it believes that several factors could support prices in the final quarter of 2024, including a strong labour market, withdrawals from Employees’ Provident Fund (EPF) Flexi accounts, wage increases for civil officials in December, and an increase in tourism expenditure.
“However, the government’s aggressive price control-efforts such as Jualan Rahmah Madani and price caps on selected goods during festive seasons will absorb any price imbalances in the market to support consumption,” it said, adding that unless there are major policy changes or spikes in commodity prices such as crude oil, prices should remain stable for the rest of the year.
The research house said it is keeping its 2024 CPI yearly average growth forecast at 1.8% y-o-y, reiterating that for 2025, its inflation forecast is subject to potential price adjustments resulting from the government’s plan to reassess programmes and subsidies.
Interestingly, CGSI Research commented that the government’s widening of its tax scope will have a limited impact on CPI growth, while based on the former’s preliminary assessment, subsidy adjustments may add only 20 basis points to annual CPI growth in 2025.
“Thus, we also maintain our 2025 CPI average growth forecast of 2% y-o-y, which is at the lower end of the Finance Ministry’s CPI range of 2.0% to 3.5% as announced in Budget 2025.
“We expect that tight price restrictions and a lack of significant near-term pricing pressures will keep Malaysia’s CPI growth moderate for the majority of the first half of next year,” it said.
Notably, UOB Research and Kenanga Research are projecting Bank Negara will keep the overnight policy rate at 3% through 2025, as the central bank continues to assess evolving global economic conditions before considering further adjustments.
“Bank Negara will likely extend its interest rate pause until there is sufficient justification for a recalibration of its monetary-policy stance,” said UOB Research.
