The inflation rate in Malaysia has been surprisingly benign in 2024, with both the headline and core inflations averaging 1.8% in the first to third quarters of 2024, according to OCBC Global Market Research report.
The report showed that the headline inflation in September was 1.8% year-on-year (YoY) compared to 1.9% in August, falling below both consensus expectations and OCBC’s estimate of 1.9%. Core inflation, on the other hand, eased to 1.8% from 1.9% in August.
As for next year, OCBC sees modest downside risks to its 2024 inflation forecast of 1.9%.
“As such, the inflation rate next year will be closely associated with policy outcome,” the report stated while detailing several inflationary policies on the horizon, including a planned increase in RON95 fuel prices starting mid-2025, a 13.3% hike in the minimum wage from February 2025 and a 7%-15% increase in civil servant salaries effective December 2024.
“If the RON95 rationalisation is implemented as outlined in Budget 2025, OCBC estimates that the retail prices could rise by 20%-25% from July 2025 compared to OCBC’s estimated average inflation higher to 2.6%-2.8% YoY in 2025.
“The caveat, however, is that the implementation mechanism is unclear given particularly when the subsidy removal will be targeted to a certain section of consumers,” the report stated.
In terms of monetary policy, OCBC forecasted that Bank Negara Malaysia (BNM) is expected to keep its policy rate unchanged at 3% for the rest of 2024 and 2025.
“However, we expect BNM to remain vigilant of second-round inflationary pressures and do not rule out the possibility of a rate hike in the second half of 2025,” the report stated.