The inflation rate might rise to between 2.5% and 3% in 2013 from 1.7% in 2012 as subsidy rationalisation may resume after the general election and possible spillover effects seen from the higher commodity prices, according to CIMB Investment Bank Bhd regional head of economics research Lee Heng Guie.
“I think inflation will be trending higher next year,” he said. Lee estimated inflation for 2013 to be 2.5% to 3% against the Finance Ministry's 2% to 3% at the 76th Financial Advisory Series held by CIMB Preferred.
According to him, potential risk of food inflation stemmed from the possible El Nino dry spell which would spillover to commodities.
Besides that, fuel subsidy wais budgeted to reduce from RM25.2bil this year to RM20bil in 2013 in the latest budget, he said. In Budget 2013, the Government had also proposed to reduce sugar subsidy by 20 sen per kg to 34 sen.
He expected inflation rate this year to be 1.7% versus 2%-2.5% forecast by the Finance Ministry.
The consumer price index for the January-to-September period showed an increase of 1.8% to 104.7 this year compared to the corresponding period last year.
On the overnight policy rate, he expected Bank Negara to maintain it at 3% for the first half of 2013.
“With growth risk now taking centre stage against a backdrop of cautious and bumpy global conditions, we expect the central bank to maintain its quite accommodative monetary policy to sustain the resilient domestic demand,” he said.
Besides food inflation, which would dampen the spending power of low and middle-income earners, Lee identified four other factors that would affect Malaysia's economic outlook.
The main concerns include the eurozone debt crisis, the economic outlook in the United States, growth in China and capital flow volatility.
He said the third round of quantitative easing might be “unlimited” to improve the economic condition in the United States.
“You may see new flow of liquidity coming to the shore of the emerging market,” he said, adding that investors would seek higher returns elsewhere due to the languishing economies in the United States and Europe.
He said emerging markets including Malaysia needed to be prepared for the possibility of the capital outflows later.
Recently, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said Malaysia could manage the surges in capital inflows and reversals as the country's financial system had reached a level of maturity.