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KUALA LUMPUR – Bank Negara Malaysia is likely to raise the overnight policy rate by another 25 basis points in November following the strong core consumer price index (CPI) recorded in September, according to MIDF Research.
The research house said domestic demand has continued to strengthen as the core inflation rate touched a new peak point again at 4% year-on-year (y-o-y) in September 2022 while core prices still grew 0.3% month-on-month.
However, the headline inflation softened slightly to 4.5% y-o-y while non-food inflation and food inflation eased marginally to 3.3% and 6.8% respectively.
MIDF Research sees the inflationary pressure in Malaysia moderating after August 2022, especially with the slight correction in global commodity prices and the easing of supply chain pressures domestically and regionally. It is bumping up slightly its headline CPI forecast to 3% for 2022.
“In the environment of elevated global commodity prices, inflationary pressure in Malaysia is affected via higher food inflation.
“We expect food prices to rise 5.5% this year, due to, among others, the further depreciation of the ringgit against the US dollar,” it said.
Moving into 2023, MIDF Research said supply push factors on inflation are expected to soften, underpinned by the appreciation of the ringgit versus the greenback, moderation in food prices, further easing in global supply chains, and lower commodity prices.
However, Malaysia’s inflation outlook remains cloudy for next year, awaiting the new government’s approach to the fuel subsidy mechanism post-general election.
“If the new government keeps the status quo on the fuel subsidy, the headline inflation would hover between 2.3 and 2.5% for 2023.
“If the subsidy mechanism is abolished entirely, headline inflation could touch 10% while domestic retail fuel prices would see a four to 5% rise next year,” it added. – Bernama, October 21, 2022