RAM: February headline inflation to ease to 1.8%

PETALING JAYA: Malaysia’s headline inflation in February is expected to moderate to 1.8% year on year, given a negative growth contribution from transport fuel amid lower retail fuel prices and high-base effects from the previous year.

In a statement, RAM Ratings said the average price of RON95 fell 2 sen to RM2.26 per litre last month, in contrast to the sharp upward revision of 20 sen to RM2.30 per litre in the same month a year ago.
It foresees the headline inflation to ease to 2.5% this year, compared with 3.7% in 2017, as the high-base effect is expected to continue moderating contribution from the transport component.
However, the rating agency expects the price growth of the food and non-alcoholic beverage component to persist this year.
“The average growth of this component is expected to come in at 3.7% this year, slightly lower than the 4% charted in 2017, as some of the one-off cost-push factor fades. The component is also envisioned to remain the key driver of headline inflation given its significant weight in the CPI basket.”
Meanwhile, RAM Ratings said despite natural gas being revised upward in January 2018, there is as yet no broad-based notable uptick in consumer prices, indicating that businesses have likely not passed on the cost increase as they assess and devise an optimal pricing strategy.
“We will continue monitoring the market’s willingness to pass on this cost increase to assess the risk to overall inflation in 2018.”
The rating agency also does not expect further hikes in the overnight policy rate this year in anticipation of a more moderate gross domestic product (GDP) growth and inflation of 5.2% and 2.5%.
“Despite our base-case assumption, Bank Negara Malaysia’s future actions are expected to be data-dependent. Another rate hike may be warranted if GDP growth surprises on the upside and inflationary risk heightens.”