Socio Economic Research Centre (SERC), a think tank, said it expects inflation to stay elevated throughout the year as an improved labour market and potentially higher wage growth could reinforce the ongoing global supply chain snarl.
But prices of goods and services would still trend much lower than in 2022 when the inflation rate stayed mostly above 4 per cent and peaked at 4.7 per cent in the third quarter. Inflation would stay between 2.8 to 3 per cent, the think tank said in a forecast released this morning (Jan 6).
“A look at the data suggests that global inflation has peaked in 2022 after hitting the highest in four decades. The CPI readings have moderated amid underlying price pressures lingering,” the think tank said in a report to the media. “There are reasons for us to think less cause for concern about inflation in 2023.”
SERC Executive Director Lee Heng Guie explained further that exports moderation would reduce exports growth to 1.8% in 2023 from 26.5% in 2022 due to the dampening impact of weakening global demand, easing prices of energy and commodities, as well as challenges posed by high base effects.
“The momentum for exports growth had softened between September to November 2022 due to weakening demand of major manufactured goods such as electronics and electrical products, chemical and chemical products, machinery, and lower crude oil and palm oil prices,” Lee told reporters at the briefing of Malaysia’s Quarterly Economy Tracker (October to December 2022) and 2023 Outlook.
Price stabilisation would mostly be fuelled by the cooling off of commodity and energy prices and the impact of interest rate hikes by most central banks around the world as they bid to tame inflation.
SERC predicted interest rates to stay high this year, joining other forecasts that Bank Negara is set to increase the overnight policy rate further by 50 basis points to 3.25 per cent.
A higher OPR would drive mortgages up, among others, and could weigh on household spending. No further increase is expected for the remaining year.
“With inflation likely to remain high for some time despite global energy and food prices softening in recent months and a sharp easing in supply-chain pressures, a pivot back towards interest rate cut is unlikely in 2023,” the think tank said.
“Rather the quantum of interest rate hikes will be smaller,” it added.
