Inflation to stay elevated in 2014, says RHB Research

Inflation is expected to stay elevated in the next few months due to a change in administrative pricing by the government, with average rate between 3.0 per cent 3.4 per cent in 2014, said RHB Research.

In a note today, the research firm said the government's commitment to executing fiscal reforms via subsidy rationalisation has pushed the inflation rate above the 3.0 percent mark since December 2013.

However, the government launched nationwide 'Price Reduction' campaign on Jan 29 involving 10 selected supermarket chains, offering 15 per cent to 70 per cent discounts on 4,000 selected products, to lessen the impact of the rising cost of living, said RHB Research.

"We envisage at least another round of fuel price hike in the second half of 2014 given that the government has proposed to reduce total subsidies by RM7.3 billion in Budget 2014," it said.

The government hiked fuel prices in September 2013 and raised the power tariff on Jan 1, 2014.

Higher business costs following full-scale minimum wage policy implementation and an average 20 per cent hike in natural gas prices for non-power industrial sectors will likely translate into higher consumer prices over time, said RHB Research.

It added the recent increase in fees charged by doctors will only exacerbate the situation, while a few more price increases are in the cards pending the government’s green light, such as public transport fares.

Further out, inflation is set to accelerate between 3.5 per cent and 4.0 per cent in 2015, the highest since 2008, when the 6.0 per cent Goods and Services Tax is implemented on April 1, 2015.