Malaysia’s inflation to trend higher

KUCHING: Malaysia’s headline inflation is expected to trend higher in 2024 as global consumer prices continue to rise on the back of the current adverse weather conditions and geopolitical tensions.

“We expect headline inflation to trend higher to 3.3 per cent yo-y in 2024, against an estimated of 2.6 per cent in 2023.

“The determinants of inflation trajectory include changes in domestic policies i.e. revision in services tax and fuel subsidy rationalisation, movement of commodities and food prices, and the build-up of demand-side pressure amid improved growth prospects. Inflation risks are cushioned by steady food prices (partially due to the continuation of food subsidies and the release of buffer stocks).

“Uncertainties over consumer prices are also led by policy manoeuvres, especially the actual implementation timeline and magnitude of fuel price adjustment for diesel in 2Q24, followed by RON95 in 2H24,” said the research team at RHB Investment Bank Bhd (RHB Investment).

It explained that it sees clear signs of supply congestion in the global food and energy backdrop. Food prices in Asia have picked up dearly, on doubt on the premise of supply constraints.

“Food prices will likely point higher, exacerbated by India’s rice export ban and El Nino weather conditions threatening

We expect headline inflation to trend higher to 3.3 per cent y-o-y in 2024, against an estimated of 2.6 per cent in 2023.

RHB Investment

favourable harvesting conditions. Our proprietary model on global food prices against the NOAA Oceanic Nino Index suggests that food prices face severe upside risks in the coming months,” it said.

Separately, it pointed out that global inflation may heat up further on the back of geopolitical tensions.

“The unfortunate aspect is that geopolitical tensions are wild card events and generally volatile (and uncertain).

“Still, shipping costs are soaring given recent (and previously ongoing) tensions, while little news of resolution exists. We do not discount higher energy and logistic costs on the horizon, especially should these risks persist in the coming months,” the research team added.

Despite that, RHB Investment said it believed China’s economic recovery will introduce tailwinds to commodities such as energy and base metals.

“Despite the challenges faced in China’s property segment, we are seeing a gradual recovery in China’s consumption of commodities such as steel and cement. Specifically, construction activities account for roughly 40 per cent of China’s steel and iron ore demand. Meanwhile, its consumption of key global commodities such as iron, aluminium, copper, and coal accounts for the lion’s share of global supply,” it added.

Beyond China’s potentially higher commodity demand as economic momentum recovers in 2024, it noted the positive spillover effects to Asean’s growth over the same period. ASEAN will benefit from China’s economic return on the back of stronger trade and tourism prognosis.

“Overall, we expect a rosier Asean economic backdrop in 2024, with GDP growth to accelerate in the region.

“We think trade and tourism prospects, especially in Malaysia, Vietnam, Singapore and Thailand, will benefit from the return of China and the E&E trade.

“At the same time, Indonesia still has room to catch up regarding its exposure to China’s E&E industries.

“On top of positive spillovers to Asean’s services industries, we also like the electronic, transport, and chemicals industries, given China’s empirical demand in the last decade,” it added.