KUALA LUMPUR (Jan 22): UOB Global Economics and Market Research is keeping its full-year inflation forecast at 2.6%, while RHB Retail Research has maintained its projections for headline and core inflation at 3.3% and 3.6% year-on-year (y-o-y) respectively.
In a note on Monday, UOB senior economist Julia Goh and economist Loke Siew Ting said their forecast factors in the 2% service tax hike from March, but not the effects of other domestic price policy changes, especially the subsidy rationalisation and progressive wage mechanism.
"Other upside risks to our inflation outlook include volatile global commodity prices, second round effects from the implementation of progressive wage mechanism and more robust labour market.
The pair also believe that Bank Negara Malaysia (BNM) will keep the benchmark overnight policy rate (OPR) intact at 3% for the rest of the year, partly due to the continuation of positive real interest rates and an expected narrowing negative interest rate gap with US rates in the second half of 2024.
The economists believe that the consumer price index (CPI) growth may have hit a bottom and will start to rebound from January, as a number of tax and price adjustments take effect, namely the 10% capital gains tax on sale of unlisted shares by companies, the 10% low value goods tax on all imported online goods sold at under RM500, the five-fold sugar tax increase to 50 sen per litre, and introduction of e-invoicing for businesses, starting with those whose sales revenue are at least RM100 million from Aug 1, and a tax of 5% to 10% on high-value items such as jewellery, gold, watches, handbags and passenger vehicles priced above certain thresholds from May 1.
Meanwhile, the forecast by RHB's economist Chin Yee Sian is underpinned by policy manoeuvres amid the country's fiscal consolidation plan.
In a note on Monday, Chin said the policy manoeuvres include revision in services tax, coupled with the planned gradual fuel subsidy rationalisation.
Chin added that fiscal consolidation measures such as adjustments in fuel prices and utilities tariffs, as well as the revision in services tax, could inject upside risks on Malaysia's inflation momentum.
“On the external front, we remain cautious about the potential upside bias for commodity and food prices in the upcoming months. The commodity prices would be buoyed by the higher demand amid the acceleration in global activities coupled with the risks of supply congestion.
“The materialisation of China’s economic recovery in 2024 [where there have been more signs of stronger economic momentum as per the latest data releases] could lift the commodity demand and prices ie crude oil prices and base metals.
“Should the phased fuel subsidy rationalisation be implemented later in the year, the higher crude oil prices could potentially translate into higher retail prices in the local market,” Chin said.
Chin opined that the OPR will likely be maintained at 3% for 2024, if headline inflation falls in the official range of 2.1% to 3.6%.
Chin pointed out that the central bank might hold its benchmark rate until there is greater clarity over the timing and magnitude of fuel subsidy reform, while accessing the lagged impact on overall inflationary trajectory and economic momentum.
“So far, the inflation risks are cushioned by steady food prices, partially due to the continuation of food subsidies and price controls for staple food items,” Chin said.