Friday 29 Mar 2024
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KUALA LUMPUR (Jan 20): As core inflation remains elevated at an average of 3.0% in 2022, research firms believe Bank Negara Malaysia’s (BNM) monetary tightening cycle may not be over this year. 

MIDF Research's note on Friday said that inflation remained sticky, lingering above 4% year-on-year (y-o-y) in Dec 2022 for four straight months.  

“Core inflation hit 3% for 2022, the highest ever recorded. We opine the strong inflation trend in Malaysia is highly driven by solid consumer demand while indicators for cost inflation are on a slowing pace.  

“Job market has been improving where employment growth has been above 3.0% (y-o-y) for eigh-straight months since April 22 while imports of consumption goods and distributive trade sales continued to expand by double-digit pace, 23.9% (y-o-y) and 13.9% (y-o-y) respectively in Nov 2022,” said MIDF.  

The research outfit added with this upbeat momentum, BNM may consider raising the OPR by another 25bps to 3.0% in the second Monetary Policy Committee (MPC) meeting in March 2023.

MIDF forecasts headline inflation to average 2.3% for 2023.

“In the environment of elevated global commodity prices, global supply chain tightness and improving domestic demand, Malaysia’s overall price growth registered at 3.3% for 2022, the highest in five years.  

“Moving into 2023, supply-push factors on inflation are expected to soften among others underpin by the appreciation of USD/MYR, moderation in food prices, further easing in global supply chain pressure and lower commodity prices."  

Meanwhile, UOB Bank’s Senior Economist Julia Goh said on another positive note, core inflation decelerated for the first time in 15 months to 4.1% year-on-year in Dec, tentatively suggesting that it peaked at 4.2% in November.  

“Nevertheless, December’s core inflation continued to stay above the headline inflation for the third month in a row and surpassed its 2016-2021 long-term average level of 1.4% for the 12th straight month,” said Julia.  

For the full year of 2022, core inflation averaged 3.0% against 0.7% in 2021, hitting the upper bound of the central bank's forecast range of 2.0%-3.0%.  

She added future interest rate movement would be data-dependent amid BNM’s unexpected prudent pause on its interest rate hike on Jan 19, to assess the impact of the cumulative past interest rate adjustments given the lag effects of monetary policy on the economy.

Edited ByIsabelle Francis
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