KUALA LUMPUR: Malaysia's headline inflation is expected to average between two per cent and 3.5 per cent in 2024, even with the implementation of fuel subsidy rationalisation, according to Bank Negara Malaysia (BNM) Economic Monetary Review 2023 (EMR 2023).
The inflation forecast range has incorporated some potential upside from the implementation of fuel subsidy rationalisation.
"The direct impact on headline inflation will likely dissipate within a year, but there are upside risks from knock-on effects and wage-price dynamics. "Nevertheless, the short-term impact will depend on the size, timing and scope of targeted assistance," it added.
The report said headline inflation is expected to remain moderate amid contained cost pressures from easing global supply conditions.
"Price pressures from tax changes and utility tariffs are assessed to have a marginal impact on headline inflation," it said.
Additionally, the report said the impact of exchange rate depreciation on inflation will be contained by administered prices and relatively stable firm pricing behaviour.
Core inflation is also expected to moderate, but remain above its long-term average, it said.
Meanwhile, the report highlighted that limited demand pressures, stable near-term sentiments on economic conditions and wage growth that is in line with productivity increases, will likely contain upward pressure to underlying inflation.
It said the country's Inflation outlook remains highly subject to upside risks due to potential price adjustments on food and energy items, as well as external pressures from exchange rate and global commodity price developments.