Inflation Outlook Does Not Change BNM’s Intransigence!

Outlook for inflation is choppy and elevated. Many economists are pegging a 25-basis-point interest rate hike by the monetary policy committee (MPC) of BNM in their meeting in early November.

According to the Statistics Department, headline inflation slowed down year-on-year (y-o-y) to 4.5% for September 2022, core inflation in turn picked up to 4% y-o-y compared with 3.8% in August.

More importantly, however, the data showed that headline inflation had decelerated by 0.1% in September, compared to 0.2% and 0.4% in August and July, respectively.

The headline inflation gauge takes into account the whole basket of goods and services produced by a nation’s economy for the period in review, while core inflation removes items whose prices fluctuate more wildly – usually food and petrol – from the equation.

While it may be encouraging that inflation had eased up month-on-month from July to September, Public Investment Bank Bhd (PIB) Research believes it may be too early to tell of any trend.

Despite pegging its 2022 whole-year inflation projection at 3.3%, Maybank Investment Bank Bhd (MIB) Research predicted that prices of goods and services could increase by up to 4% in 2023. This will be underlined by the impact of the announced rationalisation in price subsidies for essential food, fuel and energy, as well as the expected gradual adjustments in fuel prices and electricity tariffs due to subsidy reviews in 2023.

TA Research and CGS-CIMB Research, in the meantime, are forecasting Malaysia’s headline inflation rate to hover around 3.1% for the whole of 2022. Like MIB Research, both TA Research and CGS-CIMB Research are also of the opinion that Bank Negara would be increasing the OPR in its next MPC meeting by another 25 basis points to continue curbing inflation.

But is that enough? No! The Fed’s hikes increasingly appreciate the dollar against other currencies, including the ringgit. Why can’t we raise OPR by 0.75 - 1.0% now and stop the continued decline of the ringgit and consequently suffer from imported inflation? Why are we so focused on growth when inflation should be our No. 1 enemy? What’s the point of 4-5% growth when inflation is also above 4%? Does it make sense in real terms? Liz Truss and her economics may do well in Malaysia!

Reference:

All eyes on inflation outlook, Keith Hiew, The Star, 26 October 2022