Malaysia Aims for Lower Inflation in 2025 as Subsidy Reform Takes Shape
Sign up for Global Macro Playbook: Stay ahead of the curve on global macro trends.
Malaysia expects inflation to moderate towards the lower end of its target range in 2025, driven by a phased rollback of fuel subsidies, according to Economy Minister Rafizi Ramli, as reported by the Wall Street Journal. Ramli outlined a "surgical approach" to removing fuel subsidies, focusing on higher-income earners, and thereby minimizing the impact on overall inflation.
"This will help contain inflation at around 2%-plus," Ramli stated in an interview. He emphasized that the targeted, two-tiered approach, while more complex, would mitigate the risk of triggering a broader price surge.
The move comes amidst global economic uncertainty, particularly regarding the incoming Trump administration's trade policies. Ramli acknowledged the unpredictability of the new US administration's approach, noting, "We haven't seen the full suite of policy announcements from Trump yet." He added that the full response from China, another key trading partner, remains uncertain.
Malaysia's fuel subsidies have been instrumental in controlling inflation since the pandemic, enabling the nation to curb rising prices more effectively than many regional peers. Consumer price inflation has remained close to 2% since mid-2023, with the government aiming for a 2.0%-3.5% range in 2025.
However, the substantial cost of fuel subsidies, exceeding $4 billion in 2023, has prompted a gradual phasing-out strategy. The government is now ready to implement this plan, with savings estimated at $1.8 billion, earmarked for education, healthcare, and public transportation.
"The plan is fixed, with no more delays," Ramli asserted, stating that the rollback is scheduled for the second quarter of 2025.
The minister also indicated an openness to further subsidy reforms, emphasizing the need to address major subsidies first. He also hinted at the possibility of reintroducing the goods and services tax (GST), which was removed in 2018 due to concerns about price increases.
"Once household incomes are higher and inflation is contained for much longer, we are open to other policy options that are more sensitive to inflation, and GST is one of them," Ramli said.