RAM: Headline inflation to moderate to 4% in October

PETALING JAYA: The headline inflation rate is expected to moderate to 4% in October, from 4.3% in September, said RAM Ratings.

The rating agency attributed the slower pace of consumer price increases to weaker contribution from the transport fuel component amid tapering low-base effects of retail petrol prices.

It said the uptrend in global crude oil prices has been unexpectedly steep heading into the final quarter of 2017, with the average price of Brent crude surging to its highest level since June 2015, of US$57.50 a barrel in October.

“That said, we expect the dissipating low-base effects from retail petrol prices (on the transport component) and the tapering of the inflationary impact from the removal of cooking-oil subsidies in November (on the food component) to offset some of this unanticipated pressure,” it said.

RAM said the elevated headline inflation in 2017 is envisaged to moderate to 2.5% next year amid easing direct cost-push factors. It expects Brent crude prices in 2018 to average close to this year’s level at US$55 (RM228) a barrel.

“This trend, along with the absence of further spikes in food prices, will reduce the significance of the incremental lift from the food and transport components in 2018.”

RAM maintained its call that there is room for tighter monetary policy, with a hike of 25 basis points in the overnight policy rate (OPR) next year, on the back of stronger demand-pull factors amid a more sustainable growth momentum in 2018.

“We expect the OPR to end the year at 3.25%. This is also consistent with the more hawkish tone of the central bank’s last monetary policy statement for this year,” it said.