Malaysia: Inflation is seen at 2.8% this year – UOB


UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting comment on the latest results from inflation figures in Malaysia.

Key Takeaways

“Headline inflation decelerated for the fifth straight month to 3.7% y/y in Jan (from 3.8% in Dec 2022) amid the implementation of the Festive Season Maximum Price Scheme for the 2023 Chinese New Year starting from 15 to 29 Jan. It marked the lowest reading since Jun 2022. The outturn matched our estimate and Bloomberg consensus. Key areas that led the price gains were – restaurants & hotels (6.8%), food & non-alcoholic beverages (6.7%), and transport (4.0%).”

“We expect inflation to average 2.8% in 2023 (MOF est: 2.8%-3.3%, 2022: +3.4%). Our inflation forecast has yet to impute any potential changes in domestic policy related to price-administered items particularly fuels, utilities and staple food product (i.e. chicken, eggs and cooking oil). In addition to that, volatile global commodity and non-commodity prices, spillover effects from China’s reopening, and currency movement are also wildcards for our inflation outlook.”

“Given a moderation in global commodity prices and softer domestic growth momentum amid lingering macro headwinds, we expect Bank Negara Malaysia (BNM) to extend its interest rate hike pause at the next monetary policy meeting on 8-9 Mar. An expected expansionary budget that is scheduled to be retabled by the government this afternoon (24 Feb) is also key to shape the policy rate outlook. Meanwhile, the current global and domestic economic developments continue to support our view that BNM will resume its policy rate hike by 25bps in May and maintain rates at 3.00% for the rest of the year.”

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