RAM Ratings: Inflation to ease to 0.3% in November


The nation’s headline inflation rate is expected to ease to 0.3% in November from 0.6% in October on the back of dissipating low-base effects on retail fuel prices, according to RAM Rating Services Bhd.

RAM Ratings economic analyst Woon Khai Jhek said this is attributed to the 4.5% year-on-year (YoY) price fall of RON95 petrol in November, versus the 1.1% YoY increase in the previous month.

He also said the overall inflation is expected to average at 1% this year against the 3.7% recorded last year on the account of low food inflation and deflationary pressure from the reinstatement of fuel subsidies.

“Looking ahead, headline inflation is projected to accelerate to 2.7% next year, mainly driven by additional pressure from the switch to targeted fuel subsidies, along with our expectation of continued spillover effects from the reintroduction of the Sales and Services Tax and low-base effects during the three-month zero-Goods and Services Tax period,” he said in a statement yesterday.

Woon added that the country’s inflation projection next year will depend on the targeted fuel-subsidy mechanism implementation and its key details.

“Another key risk to our forecast is the volatility of global crude oil prices.

“The pace of inflation in 2019 will largely depend on how effective the OPEC-led supply cuts will be vis-à-vis supporting global crude oil prices,” he said.

Meanwhile, RAM Ratings head of research Kristina Fong said based on the credit rating agency’s estimates, every US$5 (RM20.90) move in the average price of Brent crude will alter headline inflation.

“The headline inflation will be altered by approximately 0.3 percentage points in 2019, barring any second-round effects on prices,” she said.

As such, she said Bank Negara Malaysia is expected to maintain the Overnight Policy Rate at 3.25% in 2019, given the need to balance between capital outflow pressures and growth support.

“Although headline inflation is envisaged to accelerate next year, the pace of increase will still be rather nondescript as a trigger point, relative to the downside risks to growth from ongoing fiscal consolidation, volatile capital markets, US-China trade tensions and Brexit uncertainties,” she added.