MIDF Research maintains 2021 inflation forecast at 2.3%

MIDF Research maintains 2021 inflation forecast at 2.3%
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KUALA LUMPUR (July 23): MIDF Research has maintained Malaysia’s Consumer Price Index (CPI) inflation forecast at 2.3% in 2021, a rebound from a low base of -1.1% last year.

In a note today, the research firm expects the pace of inflation will be more moderate due to the fading base effect.

“While we view the nationwide lockdown to be a temporary drag on the economy, the weak demand will explain the muted underlying price pressures.

“However, overall demand condition could improve again in the latter part of the year when the economy reopens, moving to the next phase(s) of the National Recovery Plan,” MIDF said.

It said pro-consumption measures such as additional Bantuan Prihatin Rakyat (BPR) cash handouts, loan repayment moratorium, and i-Citra withdrawals will be factors that could support a stronger pent-up demand.

Of significance, the major source of inflation this year will be from cost-push inflation due to rising costs of production that have been incurred by producers, and further exacerbated by the tight restrictions which affected supply chain activities.

“In addition, the high commodity prices, especially with the crude oil prices rising above US$70 per barrel in the recent period, will also contribute to rising overall inflation this year,” it said.

“Looking ahead, we foresee inflation to be at more normalised levels as moderation in the inflation rate will be more visible as the low base effect wanes. However, the ongoing supply chain issues and rising production costs are expected to keep inflation in the positives,” MIDF said.

Earlier today, the Department of Statistics Malaysia (DOSM) announced that the CPI rose by 3.4% y-o-y to 123.2 in June 2021 versus 119.1 in June 2020.

In a statement, chief statistician Datuk Seri Dr Mohd Uzir Mahidin said CPI remained positive for the fifth consecutive month since February this year due to the lower base effect last year as a result of the decline in fuel prices for private vehicles.

He said the transport group was the main contributor to the increase in the headline inflation at 16.6%, followed by housing, water, electricity, gas and other fuels (3.2%); furnishings, household equipment and routine household maintenance (2%), and food and non-alcoholic beverages (1.3%).