KUALA LUMPUR: Malaysia's headline inflation is expected to average at 3.4 per cent this year and remain within the range of 3.0-3.5 per cent in 2023, Public Investment Bank Bhd (PublicInvest) said.
PublicInvest said this was subject to changes in domestic policy measures.
"Malaysia's inflationary pressure will remain elevated in the near term but the growth rate may trend lower in the fourth quarter (Q4) 2022 and Q1 2023.
"This was due to more stable inflation of non-food items, except for transport-related items, in tandem with the guidance given by Bank Negara Malaysia in their November Monetary Policy Committee (MPC) meeting," it said in a note today.
On the production side, PublicInvest said the Producer Price Index (PPI), a measure of inflation at the producer and manufacturer level, continued to improve further to a growth rate of four per cent year-on-year (YoY) in October from 4.9 per cent in September.
"The PPI has been registering a declining trend for a fourth consecutive month on a YoY basis, indicating possible relief on inflationary pressure from the pass-through producers to consumers," it said.
PublicInvest said following the establishment of the unity government, it expected comprehensive clarification of the timeline and strategies for the implementation of targeted subsidies to support the B40 and M40 income groups and small businesses that were severely impacted.
"The additional upside risks continue to be partially contained by the existing price controls and subsidies, notwithstanding the global commodity price developments caused mostly by the ongoing geopolitical tensions and prolonged supply-related disruptions," it added.
PublicInvest maintained its view that the central bank would likely continue its monetary policy normalisation cycle though in a much more gradual manner.
"We believe Bank Negara is unlikely to follow the US and other Asian central banks in raising its policy rate significantly in 2023 and only anticipate another hike in the first half (1H) 2023 to three per cent, likely in the January meeting, with the expectation that the balance of monetary policy between growth and inflation remains tilted toward the latter, despite coupled with the persistent weakening of ringgit.
"However, our latest assessment is subject to any signs of improvements in price pressures," it said.