Kuala Lumpur: CGS-CIMB Securities Sdn Bhd has raised its inflation forecast to 2.5 per cent year-on-year in 2022 from 2.2 per cent previously.
In a research note, the brokerage firm said the current forecast included the adjustments to more persistent commodity prices as well as recent developments including price controls and higher electricity tariffs for non-domestic users.
It said the government decided to implement a surcharge of 3.70 sen per kilowatt-hour (kWh) for the February to June 2022 period from a rebate of two sen per kWh in July 2021 for non-domestic users while prices for domestic users remain unchanged.
CGS-CIMB Securities said the firm would revise its inflation forecast higher if its assumption of milder prices in the second half of 2022 did not materialise as the commodity price outlook remained a major factor.
“Our analysis of the impact of price movements on the economy shows that global price shocks do trickle down to the consumer price index (CPI),” it said.
However, it said private consumption might not be negatively affected by positive price shocks while a rise in interest rates following higher inflation depended on whether inflation is coming from the demand or supply side.
The brokerage firm said the economy is still running below its pre-pandemic levels, indicating that the demand-pull pressures on inflation are still relatively weak.
CGS-CIMB Securities said the multitude of measures announced by the government could mitigate the global price fluctuations seeping into the domestic side.
The brokerage firm said it projected little risk of inflation disrupting the economic recovery and expected Bank Negara Malaysia (BNM) to continue to focus on domestic growth, particularly the improvement in private consumption and the labour market.
It said BNM is expected to raise interest rates twice in the second half of this year, comprising 25 basis points each time.
The brokerage firm said the government measures were balancing out the global price pressures and it believed that there is limited risk of runaway inflation this time around.
It said the pressure would continue to build up over the next several months as the underlying factors remained fully at play.
“In fact, we are unlikely to see significant easing of price pressures on the global basis in the near term. Some easing of supply chain issues and the subsequent lower freight costs will provide some offset but we do not expect much relief,” it said.
It added that delays in foreign worker intake might continue to exert pressure on wages as companies try to entice workers to meet the high demand and in return, companies might transfer these costs to consumers.
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