MALAYSIA'S DOMESTIC DEMAND SET TO STAY ON EXPANSIONARY PATH AS INFLATION SOFTENS - MIDF

Malaysia's domestic demand is set to stay on the expansionary path from the fourth quarter (4Q 2023) onward as the country's inflation continues to soften, said MIDF Research.

Malaysia's headline inflation rate fell to 1.5% year-on-year (y-o-y) in November 2023, the lowest since February 2021.

The research firm said the softening inflationary pressure, among others, was due to high base effects, normalisation of global commodity prices and supportive fiscal policies.

"Also, the moderating trend of core consumer price index (CPI) provides more reasons for Bank Negara Malaysia (BNM) to keep its overnight policy rate (OPR) in status quo in 2024," it said in a note.

However, MIDF Research warns that the headline inflation rate may trend higher at 3.2% next year, as the fuel-targeted subsidy is set to be rolled out as early as May 2024.

The research firm sees the low inflationary pressure to persist at least until the first half of 2024 (1H 2024) amid the better domestic supply chain, stabilisation of interest rates and the normalisation of global commodity prices.

"The downside risks for Malaysia's CPI and Producer Price Index (PPI) in 2024 are prolonged weakness in the ringgit and surge in petrol and diesel prices following subsidy rationalisation efforts.

"Also, global supply chain pressures may surge in 4Q 2023 onward following geopolitical tension in the Red Sea and the bottlenecks in the Suez Canal and the Panama Canal," it said.

Meanwhile, MIDF reckons that the government may introduce a managed-float price mechanism for RON95 at RM2.25-2.35 per litre and provide cash handouts to those eligible as guided by the central database hub (Padu).

"Thus, non-food inflation is set to rise by 2.5% while better domestic supply and normalised global commodity prices shall push the food inflation rate lower to 4.5% in 2024," it added.