Malaysia’s headline consumer price inflation is expected to moderate to between 2.5 and 3.0 per cent in 2023, compared to 3.3 per cent estimated for 2022, mainly driven by the easing of global supply constraints and stabilising of commodity prices.
The World Bank said the forecast is premised on the assumption that the ceiling on retail fuel prices and price control measures on selected food items remain in place throughout the year, limiting cost pressures from the prevailing global oil and food prices.
“Meanwhile, underlying inflation, as measured by core inflation (excluding food and fuel prices), is expected to remain around 3.0 per cent,” it said in its latest Malaysia Economic Monitor report, ‘Expanding Malaysia’s Digital Frontier’ released today.
As a highly open economy, it said Malaysia will continue to face substantial risks emanating from the external environment.
“Shocks to global growth – including higher than expected inflation, tighter financial conditions, intensifying slowdown in major economies, prolonged Russia-Ukraine war and continued lockdowns in China – could cause a sharper-than-expected slowdown in global growth,” it said.
The report also estimated that a one percentage point decline in gross domestic product (GDP) growth of the G7 economies and China, could lower Malaysia’s growth by between 1.0 and 0.7 percentage points.
It noted that broader and more persistent price pressures in Malaysia may necessitate further monetary policy adjustments to dampen domestic demand over the near term, while a decline in real disposable household incomes from higher prices could also weigh on the strength of consumer spending.
“Additionally, the relatively high levels of non-financial corporate debt and household debt amid tightening financial conditions may weigh more heavily on private investment and consumption,” it said.
According to the report, the consumer price inflation in Malaysia moderated to 3.8 per cent in December 2022 from 4.0 per cent in November, while core inflation was estimated at 4.1 per cent versus 4.2 per cent a month earlier.
The moderation in consumer price inflation in food and beverage prices contributed to the lower increase in national inflation. However, compared to regional peer countries and around the world, inflation has remained broadly stable in Malaysia, mostly due to blanket fuel subsidies and price controls.
“Estimates suggest that complete removal of fuel price subsidies is likely to cause a 9.0 per cent increase in consumer prices, and the impact across sectors is expected to be uneven,” it said.