PETALING JAYA: Inflation is expected to pick up this year owing to a number of well-documented factors such as subsidy reforms and the introduction of new taxes, says analysts from several research houses.
The Statistics Department reported on Monday that headline inflation had eased to 1.5% year-on-year (y-o-y) in December 2023, maintaining the same rate from the preceding month, while for whole of last year, inflation saw a y-o-y growth 2.5%, down from the 3.3% seen in 2022.
TA Research is forecasting a probable increase in the inflation rate for January 2024, driven by highly expected growth in transportation costs.
“Despite retail pump prices in January maintaining the same level as December, which is an average RM2.56 per litre, they are currently four sen higher than a year ago, reflecting a 1.6% y-o-y increase,” it said.
The research unit observed that this contrasted with the 2% y-o-y contraction observed in December, indicating a faster pace of growth in the transport index for this month, cautioning that this acceleration could potentially impact other related segments.
While reckoning inflation would accelerate quicker this year compared to 2023, it is nevertheless predicting a growth of 2.9% from its previous projection of 3.1%, due to the lower-than-expected inflation last year.
TA Research explained that the forecast continues to rely on familiar assumptions.
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It takes into consideration the expected hike in retail pump prices possibly in the second half of 2024; a potential upside bias in crude oil prices; the build-up of demand-side pressure in tandem with improved growth prospects; and the implementation of higher sales and service tax (SST) to 8% for selected items.
Explaining further, it said the proposed water tariff increase by the government is also anticipated to contribute to the inflationary pressures within the water sub-segment of the Consumer Price Index basket.
While recognising that the overall impact of the water tariff increase on headline inflation may be marginal, considering the water sub-segment’s small percentage share, the research firm said if retailers decide to pass on the increased costs resulting from higher water tariffs, it could contribute to an overall spike in prices across the economy.
“This inflationary pressure may not only impact the specific goods directly linked to water-dependent industries, but can also create a ripple effect, affecting a wide range of products and services,” it added.Similarly, Hong Leong Investment Bank Research is likewise tipping inflation to inch higher to 2.6% y-o-y in 2024, accounting for the increase in SST and the implementation of targeted subsidies.
On the other hand, it said inflation outlook for this year would remain dependent on the timing and extent of the subsidy reforms.
It cited Economy Minister Rafizi Ramli that targeted subsidies may be rolled out in the second quarter after the registration for the Central Database Hub ends in March.
At the same time, CGS-CIMB Research is forecasting inflation to grow at a rate of 3.2% this year, although it believes any drastic measures to cease subsidies will be less likely, given the government’s priority of preserving the people’s purchasing power.