KUALA LUMPUR, July 13 — RAM Ratings has revised Malaysia’s full-year inflation forecast for 2022 to 3.0 per cent, from 2.5 per cent initially (2021: 2.5 per cent).
In a statement today, the rating agency said the revision took into account recent changes in subsidies and price ceiling for key price-controlled food items as well as stronger-than-expected cost passthrough to consumers so far this year.
The removal of subsidies for bottled cooking oil, as well as a higher price ceiling for food items like chicken and eggs, took effect on July 1, 2022.
“We estimate these measures to lift headline inflation in the second half of 2022 (2H22) by approximately 0.3 percentage points. Food inflation already climbed to 5.2 per cent in May 2022, compared to 3.2 per cent in December 2021.
“Given the prolonged price pressures faced by businesses, more prevalent cost pass-through to consumers will also be inevitable in 2H22. The low base due to the PEMULIH electricity tariff discount in the third quarter of 2021 also pushes the overall inflation rate higher this year,” the agency said.
While the government is currently considering alternative schemes for petrol subsidies, the current subsidies in place for RON95 petrol and diesel, as well as electricity and water tariff, would help to temper further inflationary pressures, RAM Ratings said.
These items collectively constitute close to 13 per cent of the consumer price index (CPI) basket, the agency noted.
Bank Negara Malaysia raised the overnight policy rate (OPR) by a total of 50 basis points to 2.25 per cent, year to date, while the interest rate hikes came on the back of firmer economic recovery and stronger demand momentum, RAM Ratings said.
“Our updated projection is for the OPR to end the year at 2.50 per cent. Barring an unexpected economic slowdown, we expect the tightening cycle to continue in 2023, at a measured pace and quantum,” it added.
— Bernama
