RHB Research maintains cautious inflation projections

IN LIGHT of the recent economic data, RHB Investment Bank Bhd (RHB Research) has maintained its inflation projections for Malaysia, signalling a cautious yet optimistic outlook. 

For 2024, RHB Research economist Chin Yee Sian said headline inflation rate is projected to be 2.1%, with core inflation expected to average 2%. 

Looking ahead to 2025, she anticipated an increase in the inflation rate to 2.7%, primarily driven by gradual subsidy reforms. 

Chin indicates that inflationary pressures remain manageable, attributed to the recent diesel price adjustments in Peninsular Malaysia and modifications in the service tax, leading to a 1.8% year-on-year (YoY) increase in headline inflation for the first nine months of the year. 

Malaysia September’s Consumer Price Index (CPI) inflation slightly decreased to 1.8% YoY, falling below both Bloomberg consensus and RHB Research’s own projection of 1.9%. 

Chin stated: “Despite the slower inflation momentum, we have observed a slight uptick in inflation momentum in other ASEAN countries, such as Thailand, Indo- nesia and Singapore, amid higher energy prices.” 

This decline indicates a softening momentum in both headline and core inflation trends. 

RON95 Subsidy and SST 

Chin believed the trajectory of inflation in Malaysia will be influenced by several critical factors. 

The upcoming rationalisation of the blanket subsidy for RON95 petrol in mid-2025 raises concerns regarding its targeting mechanism. 

Current discussions suggest a potential two-tier pricing system, which could limit inflationary impacts if only a small segment of the population experiences price hikes. 

“The unresolved question is the targeting mechanism for the RON95 fuel subsidy, which lacks clarity,” Chin said. 

Chin also noted that the gradual widening of the Sales and Services Tax (SST) set to take effect from May 2025, to include non-essential goods and commercial services, could lead to increased consumer prices. 

However, basic food items will remain exempt, and the precise rates and scope of the expansion remain unclear at this stage. 

“There is a lack of clarity on the scope of the expansion and the tax rates to be imposed at the time of writing,” Chin said. 

Meanwhile, Chin remarked that strong year-to-date growth figures, with GDP growth projected at 5% for both 2024 and 2025, suggest resilience in domestic demand. 

Continued acceleration in trade and manufacturing activities, alongside increased consumer and investment spending, could further drive inflation. 

Chin anticipates that “further acceleration in trade and manufacturing activities, coupled with continued resilience in domestic demand from increased consumer and investment spending” will contribute positively to the economic outlook. 

Commodity Prices and OPR

On another note, Chin opined that higher price for commodities, particularly food, base metals and energy, remain a possibility through the end of 2024. 

Factors such as lower global interest rates and geopolitical tensions may contribute to elevated prices, impacting the overall inflation outlook. The report highlights that “higher commodity prices, especially for food, base metals and energy, are still possible for the remainder of 2024”. 

Chin anticipated that the Overnight Policy Rate (OPR) will remain steady at 3% throughout 2024. 

With the inflation rate of 1.8% YoY being below the official projected range of 2% to 3.5%, there appears to be no immediate impetus for the central bank to adjust its policy rate. 

“We see no impetus for the central bank to adjust its policy rate level in 2024, given the steady economic outlook and manageable inflation pressures,” Chin said. — TMR 


  • This article first appeared in The Malaysian Reserve weekly print edition