KUALA LUMPUR (Oct 18): Malaysia's headline inflation may accelerate in 2025 to its fastest in eight years as the Ministry of Finance (MOF) flagged potential price pressures from subsidy rationalisation and external shocks.

The consumer price index (CPI) — Malaysia’s main gauge of inflation — may rise 2% to 3.5% in 2025, the MOF said in its Economic Report released ahead of the Budget 2025 speech. At the top of the range, the rate would be the highest since 2017, and much faster than the 1.5-2.5% forecast for 2024.

“The risk of inflation would be dependent on the degree of knock-on effects on other items from any implementation of policy measures on subsidies and price controls, as well as fluctuations in global commodity prices,” said the MOF.

Malaysia has recently removed a blanket subsidy on diesel and the rationalisation for RON95, the most widely-used petrol variant currently capped at RM2.05 per litre, may follow suit.

The government is also contemplating other measures that may affect broader price pressures in the economy, including the essential items such as local white rice, sugar, and eggs as well as the minimum wage up for mandatory review this year.

The total subsidy bill would decrease to RM61.39 billion in 2024 and RM52.57 billion in 2025, according to the MOF. The projections have yet to take into account measures to be announced under Budget 2025.

Globally, inflation is gradually receding and monetary policy begins to loosen though “significant uncertainties persist,” the MOF noted.

“The recovery, while progressing, is fraught with risks from global instabilities and external shocks, raising concerns that underlying economic vulnerabilities may deepen, despite the emerging signs of temporary relief,” the MOF added.

In the first eight months of 2024, inflation averaged 1.8%, down from 2.8% over the same period in 2023, due to slower price increases in food and beverages, as well as in restaurants and accommodation services. 

However, costs of housing, water, electricity, gas, and other fuels rose following water tariff hikes and higher prices for sewage collection services.

Click here to read more about the Economic Report 2024/2025.