Analysts project inflation rate this year at 2.0-2.2%

24 Feb 2019 / 19:34 H.

PETALING JAYA: Analysts foresee the inflation rate for 2019 to be in the range of 2.0% to 2.2% despite the 0.7% drop in the consumer price index (CPI) for January.

“We think the fall in CPI is temporary and prices should revert back up amid higher global oil prices which have been edging up since mid-February, stable demand and potential weather disruptions,” UOB Research said note last Friday.

The research house noted that the changes in consumption tax in June 2018 will also deflate CPI in the first half of 2019 before normalising in the second half of the year.

It said the targeted petrol and diesel subsidies will be introduced in April to manage cost of living for the lower income group while broadband prices will not see further reduction this year as the target of doubling the speed and halving the price was achieved in the second half of 2018.

“Potential weather disruptions and resilient domestic demand should keep inflation trends positive. Hence, we expect headline inflation to rise to 2% this year from 1% in 2018,” it said.

Last Friday, the Statistics Department reported a 0.7% decrease in CPI in January to 120.5 from 121.3 a year ago. On a monthly basis, CPI fell 0.5% from December last year.

It was the first decline in CPI since November 2009 amid a steeper drop in the transport component as petrol prices are 8-12% lower compared to the same period last year.

The lower average price of RON 95 in January this year which stood at RM1.98 per litre compared with RM2.28 in January last year, contributed to the decrease of the index of transport and overall index.

UOB expects headline inflation to revert back up once the high base effect in the transport component recedes and oil price continue to rise.

“The government has indicated that despite floating petrol prices, levels will be capped in order to manage cost pressures,” it added.

Meanwhile, MIDF Research projected 2.2% inflation for 2019 amid low base effects.

“We anticipate inflationary pressure mainly from fuel-related items to increase, consistent with our expectation on crude oil price to average at US$75 per barrel for 2019 (2018: US$72 per barrel) and given that RON95 subsidy will be targeted to only B40 group.“

UOB expects Bank Negara Malaysia to keep the Overnight Policy Rate unchanged at 3.25% for now with lingering risks tilting the growth outlook on the downside.

It said major central banks have erred on the cautious side and some are taking a pause in rate actions.

On currency, it expects US dollar/ringgit to trade between 4.05 and 4.10 in the near term, with the ringgit supported by steady domestic rates, oil prices and potential funds repatriated by Petronas and Khazanah.

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