June 26, 2025
PETALING JAYA – Inflationary pressures are expected to gradually gain momentum in the second half of the year with headline inflation projected to hover between 2% and 2.1% for 2025.
CGS International Research (CGSI Research) said inflationary pressures are poised to build up in the second half of the year as the government reforms take place.
“We think inflationary pressures will slowly build up towards the latter part of the year with the implementation of the sales and service tax (SST) expansion in July 2025, following which we expect a short-term spike in prices where the consumer price index (CPI) headline could rise 0.5% month-on-month (m-o-m) in July before peaking in September.
“We deduced that the SST expansion could add 10 to 20 basis points (bps) to the country’s annual CPI growth in 2025,” it noted.
For the month of May, CPI rose 0.1% m-o-m and 1.2% year-on-year (y-o-y) – the lowest recorded since February 2021 – below consensus expectations.
Meanwhile, core CPI gained 0.2% m-o-m, lifting y-o-y growth to 1.8% (April 2025: 2%).
The headline CPI was driven by softer costs in all components except transport, health and accommodation services.
CGSI Research is maintaining its 2025 CPI forecast at 2% y-o-y.
“We believe changes to the current electricity tariffs will likely be limited, as market prices for coal and gas have remained steady.”
The research house said subsidy retargeting for RON95, which is anticipated to take place in the second half of the year, could lead to some impact on consumers and businesses, subject to the mechanism of price adjustments.
“Based on our estimates, such adjustments could add 20 bps to Malaysia’s annual CPI growth in 2025.
“We anticipate prices of commodities such as crude oil and palm oil to continue remaining weak in the next few months, which could provide a buffer against any potential price pressures ahead,” the brokerage noted.
Meanwhile, Hong Leong Investment Bank Research (HLIB Research) said while there remains some upside risk from higher global oil prices due to geopolitical tensions, it is revising down its 2025 CPI forecast to 2% from 2.7% in 2025.
“This downgrade reflects limited direct impact of the SST expansion (0.1 to 0.2 percentage points), minimal effect from the electricity tariff restructuring, given that 23 million users are expected to see a reduction in their bills in July.
“Additionally, the targeted implementation of RON95 fuel subsidy rationalisation requires a smaller adjustment than previously anticipated due to lower global commodity prices and stronger ringgit,” it said.
TA Research said at this juncture, it is maintaining its full-year inflation forecast at 2.1% for 2025, reflecting a gradual uptick in price pressures in the second half of the year.
Looking ahead, it, however, sees upside risks to the inflation trajectory emerging in the second half of the year.
Notably, the planned rationalisation of RON95 fuel subsidies may trigger a one-off increase in pump prices and transport-related costs, TA Research said.
“The expansion of the SST to cover a broader range of services beginning July 1, although estimated to have a modest direct impact on the CPI, could still raise input costs for businesses, with partial pass-through to consumers likely over time.
“Furthermore, the recent volatility in Brent crude oil prices, which spiked from US$66 to nearly US$79 per barrel in mid-June amid escalating geopolitical tensions in the Middle East, introduces renewed inflationary pressure through imported fuel and logistics channels, especially if the price remains elevated.
“While the current disinflation trend is intact, these developments warrant close monitoring, particularly as fiscal consolidation measures gain momentum.
“We maintain our view that headline inflation may reaccelerate modestly in the second half of the year,” the brokerage said.