RAM Ratings expects higher inflation in January

by DARMINAA UTHAYAKUMAR/ pic by MUHD AMIN NAHARUL

RAM Rating Services Bhd (RAM Ratings) expects Malaysia’s overall inflation rate to rise to 1.8% in January from 1% in December underpinned by low-base effects on retail fuel prices.

The domestic retail petrol price of RON95 rose 4.9% on a year-on-year (YoY) basis in January 2020, in comparison to the 5.5% contraction in December 2019.

The epicentre of the prolonged outbreak of Covid-19 in China weakened the world oil prices as it is the second-largest source of global demand which increased the inflation rate by 0.8%.

The prices of the Brent crude oil are expected to average between US$55 (RM230.057) and US$60 per barrel, due to the dull state of the current economy.

However, if Brent crude were to hover around US$50 per barrel throughout 2020, the inflation could ease to 1.2% from its former 1.7%.

RAM Ratings said given the significant risk that the Covid-19 pandemic could derail economic growth, we expect Bank Negara Malaysia (BNM) to cut the Overnight Policy Rate (OPR) again in the next six months to 2.5% for the year.

BNM is expected to repeat the slash of the OPR in the following six months as a result of the Covid-19 which is predicted to give economic hindrances.

This move gives businesses a pit-stop while assisting them, and at the same time will allow households to sustain their spending by providing targeted fuel subsidy programme which without would have raised consumer fuel prices to market levels.

The downtrend of global oil prices provides some leeway for the delay without compromising fiscal spending.

The death toll from the pandemic that has affected 30 countries has passed the 2,000 mark and is expected to worsen the current economic conditions.

The increase in expected inflations is a far cry from the decrease of 0.7 Malaysia has had in January 2019.

The acceleration in the inflation rates has not yet cooled down from December 2019 after it saw an increase of 0.3%.

The inflation is expected to damage the nation’s estimated GDP of 4.8% which is expected to get better from its previous year’s damage when it reached its lowest 4.3% from its goal of 4.7%.

The country’s tourism industry is also hitting corners as the outbreak slows down the downpour of tourists which will severely affect the economy.