KUALA LUMPUR: Malaysia's headline inflation is expected to stay low for 2024 supported by appreciation in ringgit and moderating global crude oil prices.
CIMB Securities revised its inflation forecast for this year from 2.3 per cent to 1.9 per cent after headline inflation stood at 1.9 per cent in August and an averaged 1.8 per cent year-on-year (YoY) in the first eight months.
"We expect the inflation rate to stay benign in the coming months, as the ringgit appreciation and moderating global crude oil prices alleviate imported cost pressures on businesses and mitigate the impact of the lower base effect," it said.
It said retail price of diesel in Peninsular Malaysia was subjected t to several rounds of downward adjustment since Aug 8, by a cumulative of 40 sen per litre to RM2.95 per litre currently, in the weekly review of retail fuel prices.
This was followed by RON97 petrol, which has seen a cumulative decline in the retail price by 28 sen per litre to RM3.19 per litre currently.
As such, CIMB Securities said the diesel index is poised to fall further this month after recording a 1.2 per cent month-on-month decline in August.
"Meanwhile, we estimate that the unit subsidy RON95 petrol decreased from RM1.10 per litre as of end-June 2024 to around 70 sen per litre currently, significantly alleviating the pressure on the budget.
"The development buys some time for the government, which aims to utilise the central database hub (Padu) database for targeted RON95 subsidy mechanism to mitigate the impact on the vulnerable segments and minimise the risk of policy reversal," it said.
CIMB Securities added that 2025 Budget may offer some clues on subsequent subsidy rationalisation plans for various items, including the extension of targeted diesel subsidies to Sabah and Sarawak, RON95 petrol subsidy rationalisation, and new sugar price mechanism.
It also expects Bank Negara Malaysia to maintain the benchmark interest rate at 3.0 per cent in 2024 and 2025.
Malaysia's inflation eased to 1.9 per cent last month, with the index points stood at 133.2 versus 130.7 in the same month last year.
The Department of Statistics Malaysia said the increase of inflation last month was driven by the incline in the main groups of restaurant and accommodation services (3.2 per cent); personal care, social protection and miscellaneous goods & services (3.2 per cent); housing, water, electricity, gas and other fuels (3.1 per cent) and recreation, sports and culture (2.0 per cent).
Other main groups recorded an increase rate below the overall inflation rate of 1.9 per cent.
However, clothing and footwear remained at negative 0.2 per cent in August.
Chief Statistician Datuk Seri Dr Mohd Uzir Mahidin said at the state level, most states logged inflation rates that were below the national rate of 1.9 per cent.
However, four states recorded increases above the national rate namely Penang (3.3 per cent), Pahang (2.8 per cent), Sarawak (2.5 per cent) and Selangor (2.3 per cent).
All states registered an increase in the inflation of food and beverages, with Selangor being the highest at 2.8 per cent, followed by Penang (2.7 per cent), Sarawak (2.0 per cent), Pahang (1.9 per cent), Putrajay (1.8 per cent) and Terengganu (1.6 per cent).
UOB Global Economics and Markets Research (UOB Research) maintained its full-year average inflation forecast of 2.0 per cent for this year, while awaiting the announcement for further subsidy rationalisation.
It said there is a possibility that the government may expand the diesel subsidy rationalisation to Sabah and Sarawak before implementing targeted subsidies for petrol RON95.
"Other subsidised items that are also on the radar screen include local white rice, sugar and cooking oil.
"Subsidy cuts aside, the effects of pre-announced pay hikes for civil servants and upward adjustments in pensions for retirees in December 2024 also bear watching," it said.
Prime Minister Datuk Seri Anwar Ibrahim announced last month that a salary increase of between 16.8 per cent to 42.7 per cent for 1.6 million civil servants would be implemented in two phases.
This initiative was earlier reported to cost the government RM10 billion.
"However, if these risks do not materialise in the coming months while global oil prices retreat further, there are downside risks to our inflation forecast for this year," it added.