KUALA LUMPUR, June 26 — CGS-CIMB Securities Bhd expects the lower-than-expected increase in electricity tariff for the second half of 2023 (2H 2023) would reduce Malaysia’s consumer price index (CPI) inflation forecast in 2023 to 2.8 per cent year-on-year (y-o-y) from 3.3 per cent previously.

The securities firm also expects Bank Negara Malaysia to keep the overnight policy rate at 3.00 per cent at its upcoming Monetary Policy Committee meeting in July, against the backdrop of an uncertain global environment and moderating inflation rate.

“That said, we think there are still pressures on inflation as the Department of Statistics Malaysia said it expects the recent disruption in vegetable supplies since May (after the Southwest Monsoon) to continue until September and the government’s intention to extend the subsidy on the prices of chicken and eggs. However, price pressures remain high, especially in the fresh meat category.

“We are also seeing ongoing price pressures for tourism-related components, particularly hotel accommodation, likely reflecting the rising number of tourists,” it said in a note today.

On June 23, the government announced it would maintain electricity tariffs for domestic users in 2H 2023, except for consumption above 1500 kilowatt-hour (kWh), affecting only 1 per cent of users.

“This is well below our expectation of an increase in electricity tariff for consumption above 600kWh, and (this) eases a major upside risk to CPI inflation in 2H 2023,” it said.

Malaysia’s CPI inflation declined to 2.8 per cent y-o-y in May 2023 from 3.3 per cent in April 2023. Similarly, core CPI inflation declined to 3.5 per cent y-o-y in May 2023 from April 2023’s 3.6 per cent, reflecting demand softening after stripping off the volatile items of fresh food and goods controlled by the government.

“The moderation in May 2023 price inflation was mainly attributed to slower growth in food costs with y-o-y inflation in food at home moderating further to 4.3 per cent while food away from home inflation remained at 8.1 per cent.

“Lower May CPI headline inflation was also primarily driven by a sharp moderation in transport inflation to 1.0 per cent y-o-y, amid continued dissipation in the base effect as well as a decrease in Brent crude oil price to US$75.70 per barrel,” it said.

CGS-CIMB also anticipates transport costs to continue to remain low in the near term. — Bernama