Inflation to moderate in 2023, says Public Invest Research

THE country’s headline inflation is expected to average within the range of 3% to 3.5% in 2023, subject to changes in domestic policy measures.

“Therefore, we anticipate comprehensive clarification of the timeline and strategies for the deployment of targeted subsidies to support the B40 (bottom 40%) and M40 (middle 40%) income groups and small businesses that have been severely impacted by recent price escalations, which we expect will be mentioned in the forthcoming Budget 2023 announcement in February,” according to a research note from Public Investment Bank Bhd.

It noted that the Consumer Price Index (CPI) dropped to 3.8% year-on-year (YoY) in December (4% in November), slightly below market expectations of 3.9%.

Core inflation rate, which excludes administered and volatile price items, declined for the first time in 16 months to 4.1% YoY in December (from 4.2% in November) while headline inflation averaged 3.3% in 2022.

The report noted that the slower increase in food inflation to 6.8% YoY in December, from 7.3% in November has attributed to the lower increase in headline inflation.

The implementation of the Skim Harga Maksimum Musim Perayaan (Christmas), which started from Dec 23 to 27, 2022, and the imposition of a cap price for cooking oil in bottles by the government has eased the inflation of this group from continuing to soar, it said.

Additionally, it noted that the stable inflation growth was also reflected by a slower increase in the transport group, which fell slightly to 4.9% YoY in December (5% in November) amid stable average fuel price of RON97 at an average of RM3.35/litre in December, while the fuel price of RON95 remained capped at RM2.05/litre since February 2021.

The cost of recreation services and culture also declined to 2.4% YoY in December (3.6% in November). On the other hand, costs of restaurants and hotels continued to trend higher at 7.4% YoY in December (7% in November).

For the full year 2022, it noted that the country’s headline inflation rate surged by 3.3% YoY compared to 2.5% in the corresponding period last year, primarily attributed to food and transport price inflation, which are also a result of geopolitical unrest between Russia and Ukraine as well as rising commodity prices globally.

In a separate report, CGS-CIMB Research said that as expected, headline inflation showed signs of moderation due to the diminishing low base effect and falling commodity prices.

“We believe government intervention in administered items will continue in the near term. Nonetheless, the electricity subsidy revision in January 2023 for non-domestic and non-SME (low voltage) users may lead to some increase in headline inflation, but we expect the impact to be minimal given its limited contribution to the CPI basket,” it said.

During its engagement with Bank Negara Malaysia following the monetary policy meeting on Jan 19, it said that they understood that the recent price movement has been driven primarily by cost-push factors (as opposed to demand-pull) amid a more rigid labour market domestically (limited wage bargaining and weak unionisation).

“As such, factors that drove inflation in the US may not be so prominent here,” it said.

It expects inflation to taper down on a YoY basis but remain elevated in the short- to medium-term given some persistent price pressures, projecting a softer CPI growth of 3% YoY in 2023. — TMR / TMRgraphic