KUALA LUMPUR, June 25 — RHB Investment Bank Bhd has lowered its 2024 headline inflation projection for Malaysia to 2.6 per cent year-on-year (y-o-y) from the previous forecast of 3.3 per cent.

The bank said that the projected range is revised to 2.5 per cent to 2.8 per cent y-o-y versus the former estimate of 3.2 per cent to 3.6 per cent.

“Our revision is founded on the marginal direct impact of diesel subsidy rationalisation on headline inflation and the delay in the implementation of RON95 petrol subsidy rationalisation to end-2024,” it said in a research note today.

It said that the inflation trajectory going forward would hinge on the lagged impact of services tax revision and implementation of low-value goods tax as well as the timeline of RON95 subsidy rationalisation and its quantum.

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“(Also, the outlook would rely on) the potential demand upsides from partial pension fund withdrawals and the spillover impact from higher global commodity and food prices.

“Furthermore, a planned increase in civil servant salaries (in December 2024) might potentially instil further upsides on the inflation pressure,” it said.

The bank’s research arm said that the direct impact of diesel subsidy float in Peninsular Malaysia would be marginal, with a potential upside on the headline inflation of less than 0.1 per cent.

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“The subsidies will continue for most of the diesel-powered commercial vehicles and public transportation.

“The government would focus on the enforcement to contain the possibility of disproportionate increase in prices following the recent implementation of diesel subsidy rationalisation,” it said.

Additionally, RHB Investment opined that RON95 petrol subsidy rationalisation might be delayed to end-2024 at the earliest, with more details to be released during the tabling of Budget 2025 on Oct 11.

“We view that the retargeting of the RON95 subsidy rationalisation might take form in a more gradual approach, as it involves a larger consumer base with a significant weightage of 5.5 per cent in the consumer price index basket,” it said.

The bank continues to see persistent global inflation amid elevated food, oil, and metal prices, suggesting a potential spillover effect on Malaysia’s inflation for the year.

“Our proprietary indicators for food inflation continue to suggest higher prices, at least into end-2024.

“Separately, oil prices will be underpinned by higher oil demand in tandem with acceleration of global activities coupled with policy induced supply cuts,” it added.

Meanwhile, MIDF Amanah Investment Bank Bhd said that it expects a gradual pick-up in inflationary pressure in Peninsular Malaysia in the second half of this year.

It opined that as the government embarked on the targeted diesel subsidy in June 2024, there may be a gradual rise in inflationary pressure across all states in Peninsular Malaysia.

The bank said the direct and indirect effects of the targeted subsidy will be observed from June 2024 onwards.

“However, in our opinion, the upside pressure is expected to remain manageable thanks to the targeted incentives given by the government to selected and eligible industry players.

“As for Sabah and Sarawak, we should expect minimal transportation price pressure as the diesel price stays status quo,” it said. — Bernama