KUALA LUMPUR, Feb 24 — MIDF Research is maintaining its Consumer Price Index (CPI) inflation projection for 2022 at 2.1 per cent following the announcement of a 2.3 per cent year-on-year rise in headline inflation for last month.

In a note, the research house said the headline inflation for January 2022 was a four-month low, representing the slowest gain since October 2021 following dissipating low-base effects from fuel inflation.

"As guided by the leading indicators, we expect the global supply chain constraint to ease and commodity prices to normalise by the second half of 2022.

"On top of that, tightening monetary policy is likely to take place next year with recovery in domestic demand and labour market continuing smoothly. If inflation were to spike, we believed the government has enough fiscal policy bullets to contain inflation among others via its subsidy approaches,” it said.

Malaysia’s headline inflation rate decelerated to 2.3 per cent y-o-y compared to 3.2 per cent y-o-y in December 2021.

MIDF Research said the softer pace was seen dragged by a lower price growth of non-food, while food inflation hit a four-year high at 3.6 per cent y-o-y.

However, it noted that core inflation remained on an upward momentum, rising by 1.6 per cent y-o-y, the fastest pace in two yeas.

"The continuous pick-up in core CPI indicates the revival effects of growing domestic demand amid a moderate recovery in the labour market and economic reopening,” it said.

Meanwhile, CGS-CIMB, which earlier this month raised its inflation forecast for 2022 from 2.2 per cent to 2.5 per cent, did not announce any revision in its note today.

The brokerage, however, acknowledged that the headline inflation of 2.3 per cent in January was higher than its forecast of 2.1 per cent, albeit milder than market expectation of 2.5 per cent y-o-y.

CGS-CIMB said the two main contributors to the sharp moderation in headline inflation from 3.3 per cent y-o-y in December 2021 were the ceiling on retail fuel prices for diesel and RON95, which limited the impact of rising crude oil prices, and the expiry of discounts on electricity bill a year ago.

"These two components more than offset higher inflation on food, services and durable goods.

"Stripping off volatile items of fresh food and goods controlled by the government, core inflation rose to the highest pace since January 2020, reflecting improving demand as well as cost pass-through from producers to consumers following economic reopening,” it said.

In another note, JP Morgan said Malaysia’s consumer prices rose 0.3 per cent month-on-month, leaving overall headline CPI in line with its expectations at 2.3 per cent over a year ago.

It opined that with core prices creeping up, monetary policy normalisation in Malaysia was likely to begin in the third quarter of 2022.

According to the company, as Malaysia continues to move toward endemic equilibrium, mobility restrictions have been broadly eased, paving the way for recovery in the non-manufacturing sector over coming quarters even as external demand is likely to slow this year.

"Looking ahead, we expect labour conditions outside the goods-producing sectors to catch up this year alongside the broader resumption in services, in turn guiding core prices higher.

"Our current forecasts pencil in monetary policy hikes of 25 basis points each in the third and fourth quarters of 2022, although we note that a faster-than-expected acceleration in underlying core price momentum in the coming months raises the bias for an earlier move,” it added. — Bernama