Headline, core inflation in 2023 seen moderating to 2.8-3.8%

KUALA LUMPUR: Bank Negara Malaysia (BNM) has projected that both headline and core inflation would moderate to between 2.8% and 3.8% in 2023 but remain elevated over the course of 2023.

BNM Governor Tan Sri Nor Shamsiah Mohd Yunus said the continued strength of domestic demand and improvement in the labour market may keep core inflation elevated in the near term.

“We expect both headline and core inflation to gradually trend lower over the course of the year but remain relatively elevated compared to historical average,” she said at the unveiling of Annual Report 2022 today.

The governor said that Malaysia’s inflation risks are skewed to the upside in the near term due to several factors, “Input cost could increase further, arising from disruptions to global commodity production and exchange rate developments.”

“Stronger-than-expected demand from China could also stoke price pressures. Domestically, the magnitude and timing of subsidy rationalisation would also determine inflation outcome,” she added.

On the other hand, downside risk to inflation include weaker global growth conditions and faster dissipation of pent-up domestic demand.

“Nevertheless, the extent of upward inflationary pressure would continue to be partly contained by existing domestic price controls and subsidies,” she added.

The central bank said that inflation rose in 2022 due to both supply and demand conditions. In 2022, inflation was driven largely by higher input costs due to higher global commodity prices following the military conflict in Ukraine, export restrictions in commodity-exporting countries, supply shortages and adverse weather conditions, and sustained US dollar strength leading to higher import prices.

These coincided with stronger demand conditions amid pent up demand following the reopening of the economy and domestic policies such as revision to minimum wage and EPF special withdrawals.