KUALA LUMPUR (Feb 10): Unlike past trends, Bank Negara Malaysia (BNM) governor Tan Sri Nor Shamsiah Mohd Yunus sees Malaysia’s core inflation taking longer to ease amid high cost and demand pressures.
Speaking at a press conference in conjunction with the release of the fourth quarter gross domestic product (GDP) performance, she said persistent core inflation indicates that demand factors continue to contribute to underlying price pressures.
“The increase in the overnight policy rate (OPR) therefore has been undertaken to manage the demand pressures.
“Over the course of 2023, headline and core inflation are expected to moderate but remain at elevated levels amid lingering cost and demand pressures. Core inflation is expected to remain elevated in the near term, given continued strength in the domestic demand,” she said.
The central bank raised the key interest rate by 100 basis points in 2022 to 2.75% from the record low of 1.75%. In the first Monetary Policy Committee meeting last month, the OPR was kept unchanged at 2.75%.
Headline inflation primarily reflects supply-demand dynamics and volatile price items, while core inflation is a better proxy of underlying inflation that is affected by demand factors.
While the current high inflation environment is a global phenomenon, Nor Shamsiah said there have been signs of moderation across countries.
“We need to closely monitor all relevant indicators to ensure that excess demand does not push inflation higher. Existing price controls and fuel subsidies, and remaining spare capacity in the economy will continue to partly contain the extent of inflation,” she explained, adding that the inflation outlook remains highly subject to any changes to domestic policy, as well as global commodity price developments.
Malaysia’s headline inflation moderated to 3.9% in the fourth quarter of 2022 (4Q2022) compared to 4.5% in 3Q2022, mainly due to the lapse in the base effect on electricity inflation — a key contributor to the higher inflation in 3Q2022.
“The moderating trend in key global commodity prices partly led to lower inflation in some consumer price index items, including fuel. Inflation for some key staple food items, such as fresh meat and eggs, also moderated during the quarter,” she said.
For 2022 as a whole, headline inflation increased to 3.3% while core inflation averaged higher at 3%. Both are expected to moderate but remain elevated in 2023 amid lingering cost and demand pressures.