Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on January 23, 2020

KUALA LUMPUR: Malaysia’s inflation rate is expected to continue to rise but remain modest in 2020, say analysts who, however, differ in their views on the extent of the increase.

United Overseas Bank (Malaysia) Bhd senior economist Julia Goh said inflation is expected to continue its steady trend upward as the year progresses despite the government postponing its plan to float fuel pump prices.

“This is mainly premised on a planned upward adjustment in water tariffs nationwide, potential pass-through impact of a new mandated RM1,200 minimum wage in 56 towns and cities, as well as rising global goods prices amid normalisation from year-ago low base effects.

“We expect inflation to average higher at 2.5% in 2020 albeit with downside risks,” she said in a note yesterday.

However, this view is disputed by MIDF Research, which said the postponement of the targeted fuel subsidy mechanism, on top of an 18% reduction in toll rate for all PLUS highways, has brought down its initial 2020 inflation estimates.

The research house’s revised inflation forecast for 2020 is 1.7%, versus 2.4% previously. Meanwhile, UOB Malaysia expects inflation to average higher at 2.5% in 2020.

To recap, the petrol subsidy programme, which was scheduled for implementation in January 2020, has been postponed to a later date following a cabinet decision on Dec 18, 2019.

The government explained that the postponement was due to the need for elaboration and clarity in order to provide better understanding and prepare consumers for the targeted subsidy implementation.

Earlier yesterday, the Department of Statistics Malaysia announced that the consumer price index (CPI) — which represents the rate of inflation — has increased by 1% in December 2019 from a year earlier on costlier items, including food and non-alcoholic drinks besides water, electricity and fuel.

The CPI for 2019 as a whole registered an increase of 0.7% as compared to 2018.

Chief Statistician Datuk Seri Dr Mohd Uzir Mahidin said that out of 552 items covered in CPI, 360 showed an increase in December from a year ago, while 137 declined and the remaining 55 were unchanged.

Bank Negara Malaysia had also said in November that headline inflation is expected to remain modest in 2020, though higher than in 2019.

“Headline inflation in 2020 is projected to average higher than in 2019 but remain modest,” the central bank said. “This reflects the lapse in the impact of consumption tax policy changes, the lifting of the fuel price ceilings amid the relatively subdued outlook on global oil prices and policy measures in place to contain food prices.”

“Underlying inflation is expected to remain stable, supported by continued expansion in economic activity and in the absence of strong demand pressures,” it added.

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