KUALA LUMPUR, March 25 — MIDF Research is maintaining its projection that the consumer price index (CPI) will moderate to 2.1 per cent this year, from 2.5 per cent last year with rising food prices and growing demand as the source of inflation.

"We opine that the normalisation of supply in the latter part of the year and the price control imposed on retail fuel and selected food items will limit the upward pressure on the overall CPI.

"With inflation to remain within 2.0-3.0 per cent, Bank Negara will likely increase overnight policy rate (OPR) by 25 basis points (bps) to 2.00 per cent in the second half of 2022 on the back of sustained economic growth,” MIDF Research said in a research note today. The OPR is currently at 1.75 per cent.

The government is also expected to take action to contain inflation should the rise in commodity prices and prolonged supply disruptions in the international market lead to stronger inflationary pressures, the research house said.

According to the firm, across many global economies, cost-push inflation factors and supply-demand disparity, in light of the persistent supply constraints and surging commodity prices, continues to drive up global consumer prices.

"The US annual inflation rate hit a multi-decade high of +7.9 per cent year-on-year (y-o-y) in February 2022, underpinned by the soaring energy and food prices. Likewise, the rising food and energy bills resulted in the headline inflation in the eurozone climbing to an all-time high of +5.9 per cent y-o-y in February 2022.

"A similar trend was also observed in some Asian economies such as Singapore, Thailand, South Korea, and Japan in February. Meanwhile, consumer prices eased in Indonesia and Taiwan, underpinned by the slower inflation for housing, among others,” MIDF said.

Moving forward, the research house said there will be higher price pressures from the rise in global commodity prices, coupled with the supply bottlenecks amid the ongoing conflict in Ukraine, while the re-imposition of lockdown in China will also impose inflationary pressure as the global supply may take longer to normalise. — Bernama