Head of economics Nazmi Idrus said the government’s intervention on matters such as chicken prices and petrol and toll fees would continue to partly contain inflation in the near term.

“However, the recent electricity price hike for non-domestic and non-small and medium enterprises (SMEs) (low voltage) users will take effect on January 2023, and we expect this to lead to some increase in headline inflation.

“Our calculation highlights a possibility of the CPI rising by 10 basis points (bps) y-o-y in January 2023F, as roughly 60% of electricity users in the country are non-domestic users, and of these, 60% are non-SMEs,” he said in a note today.

Electricity weighs in on the CPI basket at 2.7%, he said, but the second-round effect could be slightly larger.

Nazmi said November’s strong core inflation growth reflected the strong domestic demand conditions during the month, supportive of the continued rate normalisation cycle by Bank Negara Malaysia (BNM).

BNM’s statement in November provided a clear warning that inflationary pressures are likely to remain in 2023, and the central bank highlighted its readiness to remain hawkish if necessary.

“We expect two more 25bps increases to the overnight policy rate (OPR) to 3.25% in 2023F,” said Nazmi.

In November, Malaysia’s CPI rose 0.3% month-on-month (m-o-m) (Oct 22: +0.2% m-o-m) and 4% y-o-y (similar to October 2022).

Meanwhile, core CPI grew 0.4% m-o-m (October 22: +0.1% m-o-m), raising y-o-y growth to 4.2% (October 2022: +4.1%), driven by two components, namely food and hotels, and restaurants.

On the same note, Moody’s Analytics expects Malaysia’s inflation pressures to begin moderating next year as supply-side pressures ease.

However, demand-side pressures are starting to build from the post-pandemic reopening.

“Bank Negara Malaysia will likely continue its policy rate hike into early next year as it had reiterated its hawkish stance in its November meeting, saying it will pre-emptively manage the risk of excessive demand on price pressures,” said economist Denise Cheok.

So far, the central bank has raised the rates four times – a cumulative 100bps – bringing the overnight policy rate to 2.75%, which is 25bps away from its pre-Covid-19 rate of 3%.

Cheok said the Malaysian economy is expected to start slowing down in 2023 after an exceptional run in 2022, with external demand for its manufactured goods weakening, mainly due to the slowing Chinese economy.

However, she noted that the nation’s export trade with Southeast Asian economies, as well as with the US and the European Union remains robust.

“Malaysia also tends to benefit from trade diversion from China, as firms reroute their supply chains into alternate locations. This trend will insulate Malaysia from the weakness of Chinese demand for Malaysian exports.

“Malaysia houses major semiconductor chip producers, and manufacturing growth here had previously been shored up by the global chip shortage.

“However, slowing demand for consumer electronics amidst weakness in the global economy is starting to be felt and will drag on manufacturing next year,” she added.