“Aided by government subsidies, Malaysia’s headline inflation has remained manageable so far in 2022, averaging 2.4% year-on-year (y-o-y) from January to May,” it noted in a research note.

“Inflation is, however, set to catch up with regional peers amid signs of rising and broadening price pressures.”

Food price inflation that has surged to its highest level since 2011 and the increase in price caps for selected items such as chicken from July, are “likely to add further upside pressures,” according to the research house.

It also noted that the low base effects from discounts implemented on electricity bills from July to September 2021 will push inflation higher in the third quarter.

“Core inflation, already on an uptrend, would inch higher amid an improving economy,” the research house added.

The rising wage growth and minimum wage hikes might also add inflationary pressure, stoked by uncertainty on fuel subsidy rationalisation, it said.

It expects BNM to continue viewing monetary policy as accommodative for the economy and is likely to follow through with more tightening in the second half of the year, given improving growth and likely increased vigilance on inflation.

“Our updated forecasts see end-2022 OPR at 2.5%, with upside risks,” the research house said.

The “measured and gradual” guidance in May points to a high likelihood of 25 basis point (bps) increments in each decision,” it said, referring to upcoming monetary policy decisions.

Unless BNM sees signs of a “disanchoring” of inflation expectations, “a 50 bps hike per meeting would be a high bar,” it added.