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Higher inflation predicted for M'sia
Publication Date : 22-10-2012
Inflation rate in Malaysia may rise up to 3 per cent in 2013 from 1.7 per cent in 2012 as subsidy rationalisation may resume after the general election and there can be spillover effects from higher commodity prices, according to a top CIMB Investment Bank Bhd economist.
“I think inflation will be trending higher next year,” said Lee Heng Guie, CIMB Investment Bank regional head of economics research.
He estimated inflation for 2013 to be 2.5 per cent to 3 per cent against the finance ministry's 2 per cent to 3 per cent at the 76th Financial Advisory Series held by CIMB Preferred.
According to him, potential risk of food inflation stemmed from the possible El Nino dry spell which would spillover to commodities.
Besides that, fuel subsidy wais budgeted to reduce from 25.2 billion ringgit (US$8.26 billion) this year to 20 billion ringgit in 2013 in the latest budget, he said.
In the next year’s budget, the government had also proposed to reduce sugar subsidy by 20 sen per kg to 34 sen.
He expected inflation rate this year to be 1.7 per cent versus 2 per cent-2.5 per cent forecast by the finance ministry.
The consumer price index for the January-to-September period showed an increase of 1.8 per cent to 104.7 this year compared to the corresponding period last year.
On the overnight policy rate, he expected Bank Negara, Malaysia’s central bank, to maintain it at 3 per cent for the first half of 2013.
“With growth risk now taking centre stage against a backdrop of cautious and bumpy global conditions, we expect the central bank to maintain its quite accommodative monetary policy to sustain the resilient domestic demand,” he said.
Besides food inflation, which would dampen the spending power of low and middle-income earners, Lee identified four other factors that would affect Malaysia's economic outlook.
The main concerns include the eurozone debt crisis, the economic outlook in the United States, growth in China and capital flow volatility.
He said the third round of quantitative easing might be “unlimited” to improve the economic condition in the United States.
“You may see new flow of liquidity coming to the shore of the emerging market,” he said, adding that investors would seek higher returns elsewhere due to the languishing economies in the United States and Europe.
He said emerging markets including Malaysia needed to be prepared for the possibility of the capital outflows later.
Recently, Bank Negara governor Dr Zeti Akhtar Aziz said Malaysia could manage the surges in capital inflows and reversals as the country's financial system had reached a level of maturity.
*US$1= 3.05 ringgit