MIDF Research has upgraded its consumer price index (CPI) forecast for the year to 2.5% from 2.1% previously on the expectation of higher food inflation following the surge in global commodity prices.
The research house said Malaysia’s inflationary pressure is expected to be affected indirectly by the rising commodity prices, especially higher food inflation at 3.5% compared to its initial projection of 2.3%.
“Looking ahead, we expect Malaysia’s domestic food inflation to stay on an increasing trend following the rise of global food CPI amid elevated commodity prices and supply chain disruptions in Europe,” it said in a note today.
It pointed out that as the country is a net importer of most food products, rising global food prices will lead to increased local food prices.
“Despite moderation from the highs last year, the latest data suggests there will be continued challenges to contain the rise in global food prices as global food inflation accelerated to 33.6% year-on-year (yoy) in March 2022, the highest since June 2021,” MIDF Research said.
Earlier today, the Statistics Department revealed the country’s CPI in March 2022 rose by 2.2% to 125.6 against 122.9 in March 2021.
This surpassed the average inflation for the January 2011-March 2022 period which stood at 1.9%. Core inflation registered an increase of 2% yoy in the same month.
MIDF Research said the upward trend in core CPI indicates the underlying price pressures from growing domestic demand, underpinned by improving labour market conditions and further reopening of the economy.
It said fuel inflation is expected to keep decelerating, keeping non-food inflation low at 2.1% in 2022 (2021: 2.8%), as the Government continues with its fuel subsidy mechanism.
It said with inflation to remain within 2% to 3%, Bank Negara Malaysia will likely increase the overnight policy rate by 25 basis points to 2% in the second half of this year on the back of sustained economic growth.
“Nevertheless, we think the Government will also take actions to contain inflation should the rise in commodity prices and prolonged supply disruptions in the international market lead to stronger inflationary pressures,” it added. – April 23, 2022
