Headline inflation to stay intense this year, says AmBank Research

PETALING JAYA: The headline inflation rate is expected to remain intense on average around 2.6% this year, coming from a weaker ringgit, firmer commodity and crude oil prices as well as the removal of cooking oil subsidies, AmBank Research said.
"We reiterate our ringgit against US dollar projection at 4.48 for the full-year average. Our interest rate outlook remains at 3% for 2017 with a low 30% probability for a rate hike sometime Q4 2017," it added.
The headline inflation accelerated to its highest reading in almost a year at 3.2% year-on-year (y-o-y) in January, from 1.8% y-o-y in December.
"We found both food and non-food inflation gained in January, especially when we witnessed higher transport prices due to higher fuel prices. Besides, we found the core inflation, which excludes the prices of food and energy, also gained by 2.3% y-o-y in January from 2.1% y-o-y in December," it noted.
The research house pointed that part of the increase in January's inflation was due to higher prices of food which gained pace by 4.1% y-o-y from 3.2% y-o-y in December. It explained that the gain came from higher prices in the food items like oil and fat (37.9%), vegetables (7.8%), fish and seafood (6.1%), as well as fruits (2.1%).
AmBank Research noted that the prices of non-food items rose to 2.9% y-o-y in January from 1.0% y-o-y previously, which was driven by furnishings, household equipment and maintenance (1.5%), health (2.5%), restaurants and hotels (2.1%), education (2.0%) and transport (8.3%).
In addition, the research house said the hike in transport prices, after contracting since March last year, was due to higher fuel prices.
"Fuel prices for RON95, RON97, and diesel were up 20 sen, 15 sen, and 20 sen to RM2.10 per litre, RM2.40 per litre and RM2.05 per litre, respectively," it added.