Inflation unlikely to spike despite subsidy rationalisation
Published on: Thursday, May 23, 2024
By: Bernama
Malaysia is expected to experience higher average inflation in 2024 compared to 2023. (AP pic)
PETALING JAYA: Malaysia’s inflation is not expected to spike despite the subsidy rationalisation rollout, said AmBank Research.
However, it said Malaysia’s average inflation in 2024 will likely be higher than in 2023.
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Based on recent government announcements, the research house said it believes the government is committed to pursuing fiscal consolidation, “allowing prices to gravitate and adjust closer to market equilibrium”.
“The strategic imperative here is to pace and sequence the rollout of subsidy rationalisation.
“The complementary policy to subsidy rationalisation, whether an early improvement in wage growth or an expansion in social safety nets by shifting the subsidy burden from fuel to other types of subsidies, should also be considered and rolled out concurrently,” the research house said in a note.
AmBank Research said mild inflation is possible if food and beverage inflation, accounting for 29.8% of the consumer price index weightage, remains low and stable.
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“It is also possible if there is no sudden removal of fuel subsidies, or in other words, a progressive and gradual removal of fuel subsidies,” it said.
Another factor for milder inflation is if there is a smaller second-round effect amid a more favourable exchange rate environment due to the possible narrowing interest rate/yield differentials between Malaysia and the US.
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The research house said it believes the government is aware of the immense pressure to swiftly implement necessary reforms, which overwhelm the economy with multiple disruptive policies within a short time frame.
It said the phased approach is a measured policy choice to balance the urgency and sustainability of initiating reforms.
AmBank Research said it also aims to mitigate immediate inflationary pressures while providing ample breathing room for the economy to readjust to new economic realities.
“As such, the risk of such policy choice is that the full impact of subsidy rationalisation will be felt later rather than earlier.
“This ensures that reform measures prioritise the well-being of the economy and the people, which is the essence of Prime Minister Anwar Ibrahim’s speech two days ago,” it said.
Anwar recently announced the implementation of the diesel subsidy rationalisation programme, involving consumers in Peninsular Malaysia, which is expected to result in savings of RM4 billion a year for the government.
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