PUBLIC INVESTMENT BANK KEEPS HEADLINE INFLATION FORECAST AT 3.00 PCT

KUALA LUMPUR, July 12 (Bernama) -- Public Investment Bank Bhd (PIVB) has maintained the headline inflation projection at 3.0 per cent year-on-year, with risks skewed towards the lower end of the official 2.0 per cent to 3.5 per cent range, contingent on the timing of the RON 95 subsidy rationalisation.

The bank said in light of renewed fiscal discipline, the potential introduction of targeted subsidies for RON 95 in the second half of 2024 remains under review and is still uncertain.

It said the fuel price for diesel has remained at RM3.35 per litre since the diesel subsidy rationalisation programme commenced on June 10.

"Given diesel's weight of just 0.2 per cent in the overall headline consumer price index, we assess that the potential for significant inflationary effects is minimal.

"A straightforward calculation indicates that a one per cent increase in diesel prices would result in a mere 0.002 per cent rise in the overall inflation rate," it said in a note.

Meanwhile, PIVB highlighted that the substantial increase in civil servant salaries by over 13 per cent, totalling approximately RM10 billion, would pose challenges to fiscal targets and could exacerbate inflationary pressures by elevating wage expectations in the private sector.

Additionally, the rollout of the Employees Provident Fund Account 3, injecting around RM30 billion into consumer spending, aims to counteract sluggish global growth and rising living costs post-subsidy rationalisation, though it may also induce demand-pull inflationary pressures.

"Nonetheless, we believe that delaying these reforms until late 2024 remains an option, with further details expected during the Budget 2025 presentation.

"A gradual approach to subsidy reform is crucial to prevent abrupt inflationary shocks," it added.

-- BERNAMA