Malaysia’s inflation rate rose to a 27-month high of 3.4% in January, marginally exceeding the market expectation of 3.3%, due to the impact of the subsidy rationalisation, coupled with the 15% adjustment in electricity tariff effective Jan 1, 2014.
In its research note today, Alliance Research said the implementation of minimum wages and the steep decline of the ringgit against the US dollar in January were the other contributing factors to the rise in the manufacturing cost of food and non-alcoholic beverages.
“For 2014, we forecast a higher inflation target of 3.2% versus 2.1% last year on the back of sustained impact from subsidy rationalisationand tariff adjustment,” it said.
The research house expects the inflation rate to increase further in the coming months, on the back of the rise in fuel prices and tariff adjustment, as well as the recent hike in assessment rates.
It forecasts the consumer price index will peak at 3.8% in August, before easing towards the year-end.
“Full-year, we forecast inflation at 3.2% in 2014,” it added.
Alliance Research said it believes the overnight policy (OPR) rate will remain steady for the most part of 2014 as inflationary pressures are caused by cost-push factors.
“However, the OPR has a 50-50% chance of being raised by 25 basis points in the latter part of 2014,” it said.