KUALA LUMPUR: Malaysia's inflation is expected to rise in the second half of 2024 (2H24) following the adjustments in diesel subsidies, with further upside risk dependent on the impending RON95 subsidy cut, said analysts.
In the latest Monetary Policy Statement (MPS), Bank Negara Malaysia (BNM) highlighted an expected upward trend in inflation for 2H24, driven primarily by the recent rationalisation of diesel subsidies.
This contrasts with the previous statement in May, which anticipated moderate inflation for 2024, underpinned by stable demand conditions and contained cost pressures.
Public Investment Bank Bhd (PublicInvest) said despite the projected rise, inflation is expected to remain manageable due to mitigation measures aimed at minimising cost impacts on businesses.
The firm said the upside risk to inflation will hinge on the extent of spillover effects from further domestic policy measures on subsidies and price controls, as well as global commodity prices and financial market developments.
"For the entire year, headline and core inflation are forecasted to average within the earlier projected ranges of 2.0-3.5 per cent and 2.0-3.0 per cent, respectively.
"The May statement noted that these forecasts already consider the potential impacts of subsidy rationalisation," it said in a note.
Meanwhile, Hong Leong Investment Bank Bhd (HLIB) said headline inflation held steady at 2.0 per cent year on year (YoY) in June from 2.0 per cent in May, lower than the consensus estimate of 2.2 per cent YoY.
Moving forward, HLIB believes although the higher inflation will be largely cost-push, close attention must be paid to any signs of increased demand-pulled pressures resulting from income supportive measures such as the Employees Provident Fund (EPF) Account 3 and civil servant salary hikes.
"Nevertheless, given the commendable growth data for the year so far and still-manageable price pressures.
"We continue to expect BNM to keep the overnight policy rate (OPR) at 3.00 per cent until the year-end," it added.