BMI forecasts Malaysia’s inflation to fall back to 10-year average of 2% by year end

BMI, a Fitch Solutions company, has forecast Malaysia’s inflation to fall back to the 10-year average of 2.0% by year end, which is lower than the firm’s previous forecast of 2.5%.

In a note on Thursday (July 27), the firm consequently also revised down its forecast for average inflation for 2023 from 2.9% to 2.7%, which is much lower than the 2022 average of 3.4%.

“As Bank Negara Malaysia (BNM) navigates the end of the global rate hike cycle, falling inflation and persistent growth headwinds, we expect the central bank to stand pat in the upcoming meeting in September 2023.

“We also anticipate that over the coming months BNM will likely lower [its] current headline inflation forecast of 2.8%-3.8% for 2023,” said BMI.

BMI said it expects headline inflation to continue easing due to high base effects from last year’s surge in global food and energy prices triggered by the Russia-Ukraine war.

It also said government subsidies and price-control measures will also help to place an implicit cap on further price increases.

“Broadly speaking, inflation in Malaysia has been lower compared to regional peers as inflation in Indonesia came in at 3.5%, Philippines at 5.4% and Singapore at 4.5% in June.

“While core inflation (3.1% year-on-year) remains elevated relative to the five-year average of 1.6%, we do not expect BNM to hike rates further in 2023,” it said.