PETALING JAYA: After a subdued 2020, inflationary pressure is picking up steam this year, although government subsidies for RON95 petrol and diesel have helped to soften the impact.
In September, headline inflation was recorded at 2.2%, which is the highest since the re-imposition of the third movement control order.
AmBank Research expects the upward pressure on inflation to continue in the coming months, driven by “transfer pricing”.
The research house said producers may transfer the rising cost of business, caused by higher commodity prices and materials, to consumers.
This, in turn, would lift inflationary pressures.
The higher cost of business is reflected by the increase in the Producer Price Index, which surged by 11.3% year-on-year in August 2021.
“But the dissipating low base and a contained fuel price with the government having set the ceiling price for RON95 and diesel at RM2.05 and RM2.15, respectively, until the end of this year should dampen the rising inflationary pressure.
“For the full year, we are maintaining our inflation projection at 2.6% to 2.8%, with no change to the overnight policy rate outlook of 1.75%,” AmBank Research said in a report yesterday.
PublicInvest Research also said that the country’s long-term upward inflation trajectory remains intact.
It expects the consumer price index (CPI), which measures the inflation, to recover this year, driven by favourable oil price movement.
This will be further pushed by a recovery in sentiment following the full economic reopening in October as Malaysia reached a broad Covid-19 vaccination coverage or over 90% adult vaccination.
“The opening of interstate travel and international borders will also be the catalyst that will lift demand for products and services.
“The CPI will also be driven by the full implementation of eight fiscal stimulus packages worth RM530bil, equivalent to about 39% of gross domestic product, which will pave the way for the turnaround in consumption activity.
“Private-public initiatives that will create at least 500,000 new employment this year (with about 400,000 already created) along with an accommodative interest-rate environment will also underpin the turnaround in the CPI,” it said.
PublicInvest Research added that a recovery in consumer sentiment, thanks to the various fiscal assistance like targeted financial transfers, wage subsidies programme, loan moratorium along with a cap in fuel prices, will be the additional drivers to support the CPI.
“The CPI is to remain elevated until year-end before tapering and normalise thereafter. Low interest-rate environment is to remain,” stated the research house.
In September, the CPI staged a rebound following the gradual re-opening of the economy, especially in states that are highly populated with high purchasing power.
This includes Selangor, Perak, Johor, Kuala Lumpur and Putrajaya.
Headline inflation was recorded at 2.2%, up from August’s 2%.
Core inflation in September was steady at 0.6%, while inflation excluding fuel was 0.8%.