January 24, 2025
PETALING JAYA – Analysts expect inflation to grow by as much as 2.8% in 2025, on the back of higher taxes and wages, base effects and continued volatility in global commodity prices and foreign-exchange (forex) markets.
MIDF Research estimated full-year inflation to pick up to 2.8%, driven mainly by changes in government policies such as subsidy rationalisation efforts in the middle of this year.
Similarly, Hong Leong Investment Bank projected inflation to rise to 2.7% year-on-year (y-o-y) in 2025, with upward pressure from domestic measures like fuel subsidy cuts, expanded sales and service tax scope, and wage increases.
Inflation moderated to 1.7% in December 2024, lower than expected, with slower increases in the cost of personal care, social protection and miscellaneous goods and services.
The consumer price index (CPI) for December showed a slower expansion compared to 1.9% in November, but still higher than the 1.5% increase in December 2023.
BIMB Securities Research believed that the current downtrend in inflation will be temporary, with gradual increases expected by mid-2025.
It said this shift is anticipated to push the full-year inflation rate to 2.7%, up from 1.8% in 2024, with key contributors including spillover effects from higher taxes and wages, base effects, and volatility in global commodity and forex markets.
“The 2025 inflation trajectory will be shaped by domestic policy adjustments and external factors.
“Notable domestic drivers include the mid-year retargeting of RON95 subsidies, February’s minimum wage hike, a sales tax revision and the expansion of the services tax scope in May, all of which are expected to raise operating costs and consumer prices,” BIMB Securities Research stated.
The research house added that external risks, such as fluctuations in global commodity markets, currency volatility and potential shifts in US policies, could amplify inflationary pressures.
“Additionally, global uncertainties loom large. Resurgent trade war concerns, following recent comments by US President Donald Trump on potential tariffs against Canada and Mexico, along with sanctions on Russia disrupting oil and tanker markets, have already bolstered oil prices.
“These developments underscore the need to closely monitor global dynamics, as they may significantly affect Malaysia’s inflation outlook and compound commodity price volatility,” it stressed.
Separately, MIDF Research said re-acceleration of inflation in other economies remains a key concern.
“In some countries, the inflation re-accelerated last month, causing a shift in the expectation on the pace of rate cuts by major central banks.
“In the United States, the headline inflation rose to 2.9% y-o-y in December 2024; meanwhile, core CPI slightly moderated to 3.2% y-o-y, indicating an easing of the underlying price pressure,” it noted.
Similarly, the research house said headline inflation in Europe accelerated to 2.4% y-o-y last month, while core inflation remained stable at 2.7% y-o-y.
“In Asia, China’s deflationary risk remained amid concerns over weak demand as the country’s headline CPI inflation eased further to 0.1% y-o-y.
“Meanwhile, other regional economies experienced a slight pickup in their CPI inflation, which are Indonesia, Thailand and the Philippines.”
With inflation remaining rather moderate than in previous years, MIDF Research continued to expect central banks’ monetary policy to be on an easing bias.