Inflation likely to stay moderate till year-end
29/08/2023 (The Star Online), Petaling Jaya - Economists are hopeful that the uptick in the prices of goods and services will continue to be manageable this year, in light of moderating inflation.
The Statistics Department reported last Friday that headline inflation had cooled to 2% year-on-year (y-o-y) last month, down from 2.4% posted in June.
Amidst the data, it was also revealed that for the first seven months of 2023, headline inflation was at 3% y-o-y, which had also decelerated compared to 3.3% in the corresponding period of 2022.
In the meantime, July’s core inflation had also slowed to 2.8% y-o-y compared to June’s 3.1%, although for the period from January to July 2023, it is still higher at 3.5% when seen against 3% last year.
Sunway University’s Dr Yeah Kim Leng said while the high base in 2022 has had a moderating effect on this year’s inflation, its momentum has eased significantly as evident in the marginal 0.1% month-on-month (m-o-m) rise in July, down from 0.2% in the previous month.
“These were 0.6% and 0.4% in June and July last year. Cost-push pressures have subsided while the normalisation of the overnight policy rate (OPR) has had a moderating impact on domestic demand, especially consumer spending,” he told StarBiz.
In addition, he pointed out that other factors that have reduced demand include softening external demand that has resulted in the slowdown in exports and industrial production.
On the other hand, Yeah is careful to note that although food price inflation has eased from 4.7% in June, it is still elevated at 4.4%.
He elaborated that India’s rice export ban has partially disrupted the global rice trade, giving rise to concerns that the imported price of rice, a staple food, may rise sharply.
“Inflation for this year will likely ease to the lower end of the 2.8% to 3.8% range as forecast by the central bank.
“With monthly core inflation averaging 3.5% in the first seven months, its gradual tapering suggests that headline inflation for the full year will be around 3%.”
Meanwhile, chief executive for Centre for Market Education, Dr Carmelo Ferlito, believes the slowing down of Malaysia’s money supply, coupled with a pullback in domestic consumption, could also have led to the reduced inflation rate.
He highlighted two main factors to look out for that will influence the rate of inflation – monetary policy decisions and the behaviour of the global economy.
More importantly, he said, it is not only the OPR that needs attention but also the control of money supply in relation to gross domestic product growth, which is also crucial.
Ferlito is predicting headline inflation to hover between 2% and 3% in 2023, while Maybank Investment Bank (IB) Research is opting to keep its inflation forecast at 3% for 2023, as the research unit is expecting the monthly inflation rate to stay below 3% y-o-y until the year-end.
“However, inflation risk remains biased to the upside amid the fluid policy on price subsidies and controls. The government has started to implement targeted subsidies, beginning with electricity at the start of this year.
“Next is the implementation of targeted fuel subsidies, potentially next year that will also end the benefits to high-income households.
“At the same time, we are mindful of El Nino-related food inflation risks,” said Maybank IB in a note.
Similarly, Hong Leong Investment Bank Research said lower commodity prices and a high base effect, on top of demand-pull price pressures, are also likely to moderate further as global and domestic growth continues to slow.Considering these factors, it is lowering its 2023 inflation forecast to 2.8% y-o-y, which is still on the lower end of Bank Negara’s official forecast range, while reiterating its anticipation that the central bank will keep the OPR unchanged at 3% until year-end.