KUALA LUMPUR (May 27): Analysts have maintained their consumer price index (CPI) forecast this year, following April’s steady inflation rate, which stood at 1.8%.

Hong Leong Investment Bank Bhd (HLIB) said the government’s recent move to rationalise fuel subsidies, starting with diesel in Peninsular Malaysia, will likely see limited impact due to the fleet card mechanism and targeted cash transfers, coupled with diesel making up only 0.2% of the CPI basket.

There have been no details on the implementation date or quantum of the cut, it said in a research note on Monday.

“As we await further subsidy rationalisation measures, we maintain our CPI forecast at +2.6% year-on-year (y-o-y) for 2024,” it said.

The Statistics Department Malaysia (DOSM) said April’s headline inflation was steady at 1.8% y-o-y, slightly below the consensus estimate of 1.9%.

Inflation was mainly supported by food and beverages, restaurants, hotels, housing, utilities and other fuels, it said.

Kenanga Research also retained its CPI target at 2.7% this year (2023: 2.5%), with upside risks primarily stemming from domestic policies.

It said the rationalisation of diesel subsidies is expected to have minimal impact on overall inflation, due to exemptions granted to most public and goods transport vehicles, as well as to Sarawak and Sabah. Such exemptions should minimise the pass-through effect on prices of goods and services.

“Nevertheless, uncertainties persist regarding the timing and mechanism of the RON95 (petrol) rationalisation, which could exert significant pressure on consumer prices.

“Despite these considerations, the outlook for prices appears relatively contained, with inflation projected to remain below 3% in the coming years,” it said.

With the potential output supported by higher investments and productivity improvements, Bank Negara Malaysia (BNM) may be inclined to maintain the overnight policy rate at 3.00% for the foreseeable future, said Kenanga Research. 

https://www.theedgemarkets.com/node/713058