MIDF Research sees Malaysia’s inflation rising to 2.4pc in 2020 on petrol subsidy policy

KUALA LUMPUR, Dec 17 ― MIDF Research expects inflationary pressure to surge to 2.4 per cent year-on-year (y-o-y) in 2020 mainly due to the government’s petrol subsidy policy.

Inflation in 2019 is estimated to settle at around 0.6 per cent y-o-y, which is lower than one per cent in 2018.

Head of research Mohd Redza Abdul Rahman said the price of RON95 had been capped at RM2.08 per litre since February this year, lower than the average price of RM2.20 in 2018, instigating downward pressure to the overall inflation this year particularly through the transport index.

However, the government’s decision to introduce a new targeted fuel subsidy starting January 2020 would have spillover effects on other basket components such as food.

The targeted fuel subsidy scheme is set to benefit a smaller group of lower income households and to float the RON95 price under this scheme whereby at the current oil price of US$62 per barrel, the price would be higher than the capped price of RM2.08.

“Increasing inflation is one of the factors to cause economic moderation for Malaysia next year as it would affect domestic demand.

“We expect the Malaysian economy to continue expanding at a slightly moderated pace of 4.5 per cent due to a combination of both global and domestic factors such as increasing inflationary pressure,” he said during a media briefing on the 2020 Market Outlook - Navigating Through Adversity here, today.

Mohd Redza said MIDF expected Bank Negara Malaysia to undertake a 25 basis-point rate cut in the first quarter of next year, with the ringgit to depreciate further to 4.20 to the US dollar by year-end and average at 4.18 against the greenback in 2020.

Cutting rate and ringgit depreciation generally would also provide an upside pressure to inflation, he noted.

He said there was a concern over Malaysia’s external trade performance which was moderately impacted by external headwinds, and the research house expected commodity-based sectors to partly mitigate this as commodity prices are seen staying at profitable levels.

“For 2020, we are forecasting Brent crude oil to average at US$65 per barrel and crude palm oil at RM2,450 a tonne,” he said.

With Malaysia’s economic growth moderating, MIDF Research expects an increase in investment expenditure by both the private and public sectors next year to support the growth.

Private sector investment was expected to expand to 4.1 per cent in 2020 versus 1.5 per cent this year while public investment, which registered -9.2 per cent in 2019 and has been negative since the fourth quarter of 2017, was estimated to be around 1.4 per cent mainly in infrastructure, he noted.

Mohd Redza added the research house expected a more challenging global economic environment in 2020, amid slowing global demand, rising geopolitical risks and loss of growth momentum of the world’s major economies including the US, China and Europe. ― Bernama