KUALA LUMPUR (March 27): Economists have maintained their targets for the consumer price index (CPI) in 2023, despite the February headline inflation being above consensus, due to stronger growth in food and beverages, restaurants and hotels, as well as housing, utilities and other fuels.

Inflation is expected to be on the upside, as economists see no guidance on subsidy rationalisation by the government, including potential policy changes to subsidies as well as the spillover effects from China’s reopening.

Hong Leong Investment Bank (HLIB) Research said headline inflation has remained relatively contained in Malaysia, largely due to existing price controls and fuel subsidies.

“As global supply constraints ease and commodity prices stabilise, we continue to expect inflation to moderate over the course of the year.

“Nevertheless, risks to the inflation outlook remain tilted to the upside, including potential policy changes to subsidies and spillover effects from China’s reopening,” HLIB Research economists Felicia Ling and Nurul Athira Salith said in a note on Monday (March 27).

Therefore, the research house maintained its 2023 CPI forecast at 3.1% year-on-year (y-o-y).

Meanwhile, CGS-CIMB also maintained its 2023 inflation forecast at 3% y-o-y, which was softer relative to 2022 CPI inflation of 3.3% y-o-y.

“February 23 headline CPI was driven by the gains in the food and energy components, while cushioned by softening in the transport component,” the economists said.

Hence, CGS-CIMB anticipates further food price hikes in the coming months due to Ramadhan and the Eid holidays as demand for food is set to soar.

"Owing to this, to cap potential price hikes, the government recently launched Jualan Rahmah, an initiative under Payung Rahmah, running from March 23 to April 23, 2023 that offers a 40% discount on over 150 basic necessities.

"Further, the government also plans to announce a holiday period price control scheme, similar to what had been launched in previous festive seasons," it said.

On electricity price tariff, the research house expects its adjustments could feed into CPI as price increases were seen in other components, particularly housing, water, electricity, gas and other fuels, which rose by 1.7% y-o-y from 1.5% in January 2023.

"The increase in the hotels and restaurants component of 7.4% y-o-y was a result of the rise in hotel accommodation prices during the school holiday season and adjustment of electricity tariffs in peninsular Malaysia after electricity price hikes for non-domestic and non-small and medium enterprises (non-SMEs) or low voltage users took effect in January 2023," it said.

Although the electricity hikes to non-domestic users do not directly affect CPI, CGS-CIMB foresees that there are indirect impacts through higher producer costs which may be passed on to consumers.

Thus far, Malaysia’s latest producer price index for January 2023 has been still mild, trailing lower at 1.3% y-o-y from 3.5% in December 2022, the research house noted.

https://www.theedgemarkets.com/node/660848