Economists unperturbed by increase in inflation

Rise mainly due to electricity and housing factors

“These two factors accounted for almost twothirds of the increase, causing the month-onmonth inflation to accelerate partly due to the increase in utilities costs. This also affects recreation prices and transport.” Prof Geoffrey Williams

PETALING JAYA: Despite Malaysia’s headline inflation edging 1.8% higher to 132.1 in February, economists are not overly concerned.

Malaysia University of Science and Technology economics Prof Geoffrey Williams said this time around, the cause for the increase was mainly due to electricity and housing.

“These two factors accounted for almost two-thirds of the increase, causing the month-on-month inflation to accelerate partly due to the increase in utilities costs. This also affects recreation prices and transport,” he told Starbiz.

According to Williams, another reason not to be overly worried is that all other categories are either stable or lower, compared to levels in January 2024.

“Core inflation, which takes out variable prices, was also stable at 1.8% in February and January. So this looks like a one-off effect. It should not affect prices ahead of Hari Raya too much,” he said.

In a report, Maybank Investment Bank Bhd (Maybank IB) Research said the consumer price index (CPI) beat the estimates of 1.5% as housing, water, electricity, gas and other fuels inflation rose 2.7% year-onyear.

Apart from this stemming from the increased water tariff that went into effect on Feb 1, 2024 for Peninsular Malaysia and the Federal Territory of Labuan, transport inflation had also increased 1.2% year-on-year.

The research house said it will maintain its 2024 inflation forecast at 3% amidst the impending subsidies as stipulated in Budget 2024, as well as various tax measures.

“The impending big measure is the implementation of targeted fuel (diesel and RON95 petrol) subsidies,” it noted.

However, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said there is a likelihood that inflation rates may remain elevated for the first half of this year.

He said in light of the rise in service tax from 6% to 8%, coupled with the subsidy rationalisation programme, inflation could keep going up.

“On that note, consumers will remain cautious in their spending plans. They might be looking for good deals whether offline or through online platforms,” he said.

Mohd Afzanizam said the most recent CPI data showed that adjustments in administered prices can easily influence overall inflation.

“Nevertheless, due to the lower weightage assigned to these items, the impact on overall inflation is expected to be relatively smaller.

“Therefore, it is crucial to be mindful of these factors when making a fair assessment of the inflationary impact of adjustments in administered prices, such as water supply and sewerage rates,” he noted.

Additionally, he said the cost of living represents the actual prices paid for goods and services, while inflation reflects the rate of change in these prices.

“Hence, economic reform agendas like subsidy rationalisation are anticipated to significantly impact the cost of living. It is crucial for the government to reallocate resources to boost productivity, particularly in areas like education, healthcare and infrastructure.

“However, in the short term, this may entail painful adjustments as consumers and businesses grapple with higher prices.”