[KUALA LUMPUR] Malaysia’s inflation rate remained at 1.5 per cent year on year in January, the same rate since November last year, thanks to the easing price growth of food and hospitality, a Department of Statistics Malaysia (DOSM) report indicated on Friday (Feb 23).

The inflation rate is lower than economists’ projection of 1.6 per cent in a recent Bloomberg survey, as most of them believe that the country’s consumer price index (CPI) will accelerate after the implementation of new taxes and price adjustments.

These changes include the implementation of a 10 per cent low-value goods tax on items purchased online costing below RM500 (S$140) and which are delivered from abroad, as well as an adjustment on the electricity tariff.

Malaysia is also mulling the implementation of a targeted fuel subsidy to replace its current blanket subsidy, which costs the government around RM50 billion.

RHB Research economist Chin Yee Sian expects the inflation momentum to rebound as early as the second quarter of this year, following a few more price adjustments in fuel and water prices, as well as a revision of the services tax in March.

She added that these measures, if implemented, will lift the headline inflation by 0.7 to 1.1 per cent.

A NEWSLETTER FOR YOU

Friday, 8.30 am

Asean Business

Business insights centering on South-east Asia's fast-growing economies.

Sign Up

OCBC senior Asean economist Lavanya Venkateswaran said the inflation outlook hinges on the timeline and how the fuel-subsidy rationalisation would work.

OCBC expects the country’s headline inflation to hit 2.5 per cent this year; it could go higher in the coming months due to rising price pressures.

In a co-authored report, UOB economists Julia Goh and Loke Siew Ting said January’s inflation readings, together with a softer economic expansion in 2023 and persistent currency weakness, reinforces the view that Bank Negara will keep its policy rate unchanged at 3 per cent.

The report said: “The continuation of positive real interest rates, budgeted government cash assistance for vulnerable groups and market expectations of global policy rate easing later in the year, will give the central bank breathing room on interest rates.”

The country’s year-on-year inflation growth has stayed below 2 per cent since last September.

Core inflation, meanwhile, moderated to 1.8 per cent in January, from 1.9 per cent in the month before that. 

On Feb 16, Bank Negara said the inflation for this year remained modest, but that the changes to domestic policy on subsidies and price controls, as well as global commodity prices and financial market development, would affect the inflation outlook.

The DOSM report indicated that 345 out of 573 – or 60.2 per cent – of the items in the CPI rose in price in January. Among these, the prices of nine items went up by over 10 per cent, while the prices of 130 items declined.

Prices of food and non-alcoholic beverages, accounting for 29.8 per cent of the total CPI, recorded a slower increase of 2 per cent in January from the year before. Prices of housing, water, electricity, gas and other fuels – contributing to 24.7 per cent of the total CPI – rose 2 per cent.

Overall, Malaysia’s inflation rate in January was lower than that of several Asia-Pacific countries, including the Philippines’ 2.8 per cent, South Korea’s 2.8 per cent and Indonesia’s 2.6 per cent.

The eurozone experienced inflation of 2.8 per cent, and US inflation stood at 3.1 per cent in January.