PETALING JAYA: RAM Ratings has revised its 2022 inflation forecast for Malaysia to 3.0% from 2.5% projected earlier.
The revision reflects recent changes in subsidies and price ceilings for key price-controlled food items as well as stronger-than-expected cost pass-through to consumers so far this year.
The removal of subsidies for bottled cooking oil, as well as higher price ceilings for food items such as chicken and eggs, took effect on July 1.
“We estimate these measures to lift headline inflation in H2’22 by 0.3%. Food inflation already climbed to 5.2% in May 2022, compared with 3.2% in December 2021. Given the prolonged price pressures faced by businesses, more prevalent cost pass-through to consumers will also be inevitable in H2’22. The low base due to the Pemulih electricity tariff discount in Q3’21 also pushes the overall inflation rate higher this year,” RAM Ratings said in a statement.
While the government is considering alternative schemes for petrol subsidies, the current subsidies in place for RON95 petrol and diesel as well as electricity and water tariffs will help to temper further inflationary pressures. These items collectively constitute close to 13% of the consumer price index basket.
Bank Negara Malaysia has increased the Overnight Policy Rate (OPR) by a total of 50 basis points (bps) to 2.25% year to date to reduce inflationary pressures. The interest rate hikes came on the back of firmer economic recovery and stronger demand momentum.
“Our updated projection is for the OPR to end the year at 2.50%. Barring an unexpected economic slowdown, we expect the tightening cycle to continue in 2023, at a measured pace and quantum,” RAM Ratings said.
