PETALING JAYA: Headline inflation, which grew by an average of 2.3% year-on-year (y-o-y) in the first eight months, is unlikely to hover above 3% by year-end.
Despite cost pressures with the gradual reopening of the economy, analysts and economists said the inflation rate would unlikely go above the 3% mark.
Kenanga Research said it has revised its 2021 headline inflation forecast up to 2.3% from 1.8% previously amid the economy’s phased reopening.
Last year, the inflation rate stood at minus 1.1%.
“As Malaysia prepares for the transition towards an endemic Covid-19 phase, most of the restrictions on the economic and social sectors are expected to be lifted as early as mid-October.
“This may cause a surge in consumer spending due to the release of pent-up demand and could trigger an increase in prices.
“Hence, the inflation rate is likely to rise in the fourth quarter and hover around 2.3%-2.7%.”
On the National Recovery Plan (NRP) outlook, more states are expected to shift into phase four in the near term, putting more upward pressure on prices.
As all states except Kedah have moved into phase two and above, Kenanga said the domestic economic recovery may start to take hold in the fourth quarter of this year.
On that account, it said Bank Negara is expected to keep the overnight policy rate (OPR) unchanged at 1.75% at its next meeting in November, backed by its commitment “to utilise its policy levers as appropriate to foster enabling conditions for a sustainable economic recovery.”
Malaysia’s headline inflation moderated by 2% from a year ago in August 2021.
The consumer price index (CPI) rose to 122.5 from 120.1 a year ago, making it the seventh consecutive month of increase since February 2021 due to the base effect last year.
Headline inflation grew by an average of 2.3% y-o-y in the first eight months of the year.
The CPI components that contributed to the increase include transport (+11% y-o-y); food and non-alcoholic beverages (+1.4%); housing, water, electricity; gas and others (+1%), and furnishings, household equipment and maintenance (+1.3%).
TA Securities predicts inflation rate in September would increase slightly on expectation of higher transportation cost growth.
In September, Melaka, Selangor, Kuala Lumpur, Putrajaya and Johor moved to phase two of the NRP while Negri Sembilan and Pahang moved to phase three.
It said despite the consistency of high commodity prices with Brent crude oil charting above US$70 (RM293) per barrel, the inflation rate is unlikely to hit its projection of 3% y-o-y.
“We foresee inflation rate to be more moderate as the lower-than-expected domestic spending and subdued underlying price pressures would result in lower inflation.
“However, the gradual reopening of economy that began in July could contribute some upward pressure on prices in the final quarter of this year.
“Therefore, we cut down our 2021 inflation projection to 2.5% y-o-y in 2021. That is still within the central bank’s CPI forecast range of 2%-3%,” it added.
Not only in Malaysia, inflation rates in the neighbouring countries are also showing signs of moderation, TA securities noted.
National lockdown and increasing infections of Covid-19 have led to a slowdown in inflation in Thailand, Singapore and China, by -0.02%, 2.4% and 0.8% y-o-y, respectively.
Meanwhile, Japan nationwide prices were flat as compared with a year earlier and the Philippines’s CPI rose by 4.9% y-o-y, mainly driven by increased price pressures in the heavily weighted food basket.
“Looking ahead, we expect inflation to normalise as the low base effect wanes,” the research house said.