Finance Ministry projects up to 3.6pc of inflation as Putrajaya tighten belts on subsidies in 2024
KUALA LUMPUR, Oct 13 — The Ministry of Finance (MOF) has predicted an inflation rate of up to 3.6 per cent next year, as Putrajaya undergoes belt-tightening with a gradual shift to targeted subsidies.
In the Economic Outlook 2024 released today, the ministry anticipated a Consumer Price Index (CPI) growth of between 2.1 to 3.6 per cent in 2024, a rising trend since the rate dipped to negative levels in the pandemic era of 2020.
“Potential risks to the inflation outlook remain subject to the fluctuations in exchange rates and supply-related factors, such as global commodity prices, geopolitical uncertainties and climatic conditions,” said the report.
The CPI has already displayed an upward trend this year, with a growth rate of 2.8 per cent recorded from January through August. The ministry expected it to fall between the range of 2.5 and 3 per cent on average for 2023.
This ministry attributed the growth to various factors, including the moderation of global commodity prices. This moderation, in turn, has led to fewer disruptions in the supply chain, resulting in better price controls and the provision of subsidies for essential items.
Budget 2024 which will be tabled by Prime Minister Datuk Seri Anwar Ibrahim is expected to announce several subsidy rationalisation mechanisms, as Putrajaya move away from blanket subsidy on its road towards fiscal sustainability.
Malay Mail is expecting a move to tighten diesel subsidy to plug up leakages from smuggling, and the expansion of the electricity subsidy cut and discontinuation of subsidy on chicken and egg prices.
Additionally, the MoF report also highlighted the delayed effects of the normalisation of the overnight policy rates (OPR) as a contributing factor to the rise in inflation.
The OPR, set by Bank Negara Malaysia (BNM), plays a crucial role in determining the interest rates for financial institutions that lend to each other overnight. These rates influence the cost of borrowing, which, in turn, can impact the overall economy.
MOF pointed to how BNM had adjusted the OPR gradually to control inflation, amid faster and higher adjustments by other central banks.
This comes as last month, the BNM announced that the rate will stay at 3 per cent, marking the third consecutive session where its Monetary Policy Committee (MPC) has opted to pause at the same level. The OPR is expected to stay for the remainder of the year.
Beyond the current situation, several potential risks to Malaysia's inflation rate remain on the horizon. These risks include the effects of climate change, fluctuations in exchange rates, and supply-related factors, such as global commodity prices and geopolitical uncertainties.
Meanwhile, the Producer Price Index (PPI) is expected to be higher in 2024 between 0.1 per cent to 2.1 per cent in tandem with diminishing base effect and better production activities. PPI measures the average change in the price of goods and services sold by manufacturers and producers in the wholesale market during a given period.
The gross domestic product (GDP) growth is expected to plunge to 4 per cent this year compared to 8.7 per cent in 2022, and is expected to taper between 4 and 5 per cent in 2024.
However, real GDP is estimated at RM1.57 trillion this year compared to RM1.51 trillion last year, marking a return to pre-Covid-19 economic growth starting from 2022.
Real GDP is projected to grow to RM1.65 trillion in 2024.
