Budi95, Lower Electricity Bill Slows Inflation In Oct, Kenanga Lowers 2025 Forecast
Malaysia’s headline inflation eased more than expected in October, slowing to 1.3% year-on-year from 1.5% in September, according to Kenanga Research. The reading came in below both its forecast of 1.7% and market expectations of 1.5%.
The sharper-than-expected moderation was largely attributed to the Budi95 fuel subsidy scheme, which kept effective RON95 pump prices significantly lower than anticipated, and to sharply reduced electricity costs due to a revised fuel adjustment rebate.
Kenanga said it had estimated an effective RON95 price of RM2.10 per litre in October, assuming that around 80% of consumers benefitted from the Budi95 scheme. However, the Consumer Price Index (CPI) data suggested an even stronger effect, implying an effective price closer to RM2.00 per litre, slightly below the pre-rationalisation level.
“This indicates that almost all consumption occurred at the subsidised Budi95 price,” the report noted.
Electricity bills also fell sharply following a 6.50 sen/kWh rebate for households consuming above 600 kWh, reinforcing the month’s disinflationary trend.
On a month-on-month basis, Malaysia recorded mild deflation of –0.07%, its first negative monthly reading this year.
Core inflation rose slightly to 2.2% from 2.1% in September, despite softer monthly gains. The increase was driven by strong price rises in miscellaneous goods and services, particularly a 33.5% surge in jewellery and watches, reflecting global increases in gold and silver prices.
Transport inflation turned negative for the first time in more than two years as petrol prices dropped 2.1% month-on-month under the Budi95 scheme. The housing and utilities segment also cooled to a 42-month low.
Kenanga noted varied inflation trends across key economies:
- United Kingdom: Inflation eased to 3.6% — a five-month low — opening space for the Bank of England to consider a December rate cut.
- South Korea: Inflation accelerated to 2.4% amid a weaker won, delaying prospects for monetary easing.
- China: Prices returned to positive territory at 0.2% as holiday demand boosted travel and food spending, though core inflation pressures remain tied to global bullion prices.
The research house revised its 2025 inflation forecast down to 1.4% from 1.5% (2024: 1.8%), citing the deflationary impact of the Budi95 scheme.
Although unsubsidised RON95 was floated and rose to RM2.65 per litre in November, Kenanga expects transport inflation to remain subdued as the majority of fuel consumption continues to come from households eligible for Budi95. Softer global oil prices could further ease costs.
Still, the firm cautioned about potential second-round effects from rising business operating costs, including from the higher SST rate and constraints faced by firms not covered under the SKPS subsidy.
Kenanga said the current economic environment — with inflation well-anchored, demand resilient, and growth momentum improving — supports maintaining the Overnight Policy Rate at 2.75%.
“With exports recovering and reform progress boosting investment sentiment, there is little reason for Bank Negara Malaysia to shift its policy stance unless significant external shocks emerge,” it added.
