KUALA LUMPUR (Dec 18): Malaysia's inflation is forecast to average around 4.2% next year, compared with 3.1% in 2014, said Bank of America Merrill Lynch (BoAML) in a note this morning.
"The broader Goods and Services Tax (GST) exemptions and weaker domestic demand in 2015 suggest a further offsetting impact. We think inflation will climb to a low-4%+ handle," it said.
"Risks are tilted toward the downside, especially if oil prices continue to slip," it added.
Headline inflation nudged slightly higher, to +3% y-o-y, in November, vs. +2.8% in the previous month, mainly driven by the alcohol & tobacco
component on higher cigarette prices, following an increase in excise duty.
Falling oil prices will also cushion the impact of the 6% GST, which is scheduled to be implemented on 1 April 2015.
"We think moderating domestic demand and falling global commodity prices – in particular, oil – are helping to keep inflation in check," said BoAML
Looking ahead, the BoAML said it no longer expects Bank Negara Malaysia to tighten in 2015, given the expectation of a severe negative shock to the Malaysian economy from lower oil and gas prices next year.
"We recently cut our 2015 GDP growth forecast to +4.6% (from +5% previously). BNM has also emphasized that inflation pressures are largely coming from the supply side, while demand-side pressures have been weak," it said.