KUALA LUMPUR: Malaysia's overall inflation rate may shoot to 3.2 per cent next year amid a shift in economic dynamics, according to MIDF Research.
This wil be attributed to the forthcoming rollout of a fuel-targeted subsidy programme, expected as early as May 2024, signalling potential impacts on the country's consumer price index (CPI).
"We anticipate that the government may introduce a managed-float price mechanism for RON95, ranging from RM2.25 to RM2.35 per litre, along with cash handouts to eligible individuals as guided by the PADU database.
"Consequently, non-food inflation is anticipated to rise by 2.5 per cent, while improved domestic supply chains and normalised global commodity prices are expected to contribute to a lower food inflation rate of 4.5 per cent in 2024," the research house said.
As of November, the average food inflation sood at 5.1 per cent year-on-year (YoY), down from the previous year's 5.7 per cent.
MIDF Research said the moderation in the food inflation rate has occurred at a faster pace than initially anticipated. This led the firm to project an overall price growth average of 2.7 per cent for this year, while non-food inflation is expected to average at 1.5 per cent.
In November, Malaysia's headline inflation rate reached 1.5 per cent YoY, marking its lowest level since February 2021 and falling below the consensus expectation of 1.7 per cent YoY.
The non-food inflation rate remained at 0.9 per cent YoY, while the food inflation rate dropped to a two-year low at 2.6 per cent YoY.
"Factors contributing to the softened inflationary pressure included high base effects, the normalisation of global commodity prices and supportive fiscal policies. The core inflation rate decreased to 2.0 per cent YoY but remained above the pre-pandemic average of 1.7 per cent," it said.
The average headline inflation for the first 11 months of the year was 2.6 per cent, compared to an increase of 3.4 per cent in 2022, and the core inflation rate was 3.1 per cent compared to 3.0 per cent in 2022.
"This easing inflationary trend is viewed positively, especially for sustaining domestic demand expansion in the fourth quarter of 2023 (4Q2023) and beyond. Additionally, the moderation in the core CPI gives Bank Negara Malaysia (BNM) more reason to maintain its Overnight Policy Rate (OPR) status quo in 2024," MIDF Research said.
Moreover in November, the fuel inflation rate in Malaysia was recorded at -1.3 per cent YoY, marking the smallest contraction rate in seven months.
"This trend aligns with the normalisation of commodity prices and the influence of high base effects. Anticipated to remain in contraction until the year-end, this is attributed to the government's plan to maintain the current fuel subsidy mechanism," the firm said.
Given the Brent crude oil price at RM3.15 per litre in November, it is anticipated that RON95 will continue to operate under a managed-float status.
"If the government were to introduce a fuel-targeted subsidy mechanism in June 2024, it is suggested that RON95 prices would be managed within a range of RM2.30 to RM2.50 per litre, rather than being left to free-float," it said.