AmBank Research: Malaysia’s inflation to remain modest for rest of 2023, early 2024

KUALA LUMPUR, Nov 24 — Malaysia’s inflation will continue to remain modest for the rest of 2023 and in the early part of 2024 due to slower pressure from the demand-pull inflation and the impact from the interest rates normalisation, said AmBank Research.

“We expect inflation to range between 2.5 per cent and 3.0 per cent in 2023,” it said in a research note.

Malaysia’s headline inflation declined to 1.9 per cent year-on-year (y-o-y) in September 2023, bringing the year-to-date (YTD) inflation to 2.8 per cent (2022: 3.4 per cent).

Core inflation, which excludes volatile items and controlled prices, stagnated at 2.5 per cent y-o-y.

On a YTD basis, core inflation stood at 3.3 per cent (2022: 3.0 per cent).

MIDF Research sees inflation to stay on the upside, with headline inflation to average at 2.7 per cent for 2023, despite moderating food inflation pressure and stabilising global commodity prices.

For the first ten months of 2023 (10M 2023), average food inflation registered at 5.3 per cent y-o-y, equivalent to the previous year’s 5.7 per cent.

“Food inflation moderated at a faster rate than expected, hence we foresee overall price growth to average at 2.7 per cent this year.

“Non-food inflation is expected to average 1.5 per cent,” said MIDF Research in a statement today.

The firm said changes in the price control mechanism will determine the speed of inflation from 2024 onwards.

RHB Research anticipates headline inflation to trend higher to 3.3 per cent y-o-y in 2024 versus 2.6 per cent in 2023.

For 2024, the determinants of the inflation trajectory include changes in domestic policies such as the revision in services tax and fuel subsidy rationalisation.

“Besides that, movement of commodities and food prices, as well as the build-up of demand-side pressure amid improved growth prospects will also influence expectations,” it said.

It is maintaining 2023 headline and core inflation projections at 2.6 per cent and 3.1 per cent y-o-y, respectively.

On the overnight policy rate (OPR), the research firms opined that it will likely be maintained at 3.00 per cent for 2024.

“In our view, the wide inflation range should provide sufficient room for potential upside risks from the policy changes.

“The central bank may adopt a wait-and-see approach to gauge policy changes impact on domestic demand conditions and the magnitude of second-round inflation impacts before any official rate adjustments,” RHB said. — Bernama