RAM Malaysia lowers inflation forecast for 2019 to 2%

RAM Ratings, which expects inflation to inch up to 0.3% in December 2018 from 0.2% in the previous month, has revised its full-year headline inflation forecast for 2019 to 2.0% from 2.7%. The rating agency said in a statement that inflation in December 2018 is estimated to rise to 0.3% from 0.2% in the preceding month due to dissipation of deflationary pressures from the transport fuel component.

The price of RON95 petrol fell 3.3% year on year in December, after a 4.5% drop in November.

On that note, overall inflation is envisaged to come in at 1.0% in 2018.

As for 2019, RAM Ratings has revised its headline inflation projection downwards to 2.0%, mainly due to changing expectations on global oil prices, which are increasingly pointing to a lower average range of US$60-US$65 (RM248-RM269) per barrel for 2019.

RAM head of research Kristina Fong said the rating firm’s sensitivity analysis indicates that for every US$5/barrel move in the price of Brent crude, headline inflation potentially changes 0.3 percentage point.

“The move back to the weekly Automated Pricing Mechanism for pump prices – effective January 2019 – is not expected to exert any significant downward pressure on inflation given the short period it will be in place ahead of the anticipated targeted fuel subsidy mechanism to be implemented in second quarter 2019.

“Moreover, global oil prices are expected to trend a little higher compared to the start of the year, An escalation in oil (petrol) prices beyond RM2.20/litre will trigger the use of subsidies to maintain this ceiling. This will also contain inflationary pressure,” she added.

The Department of Statistics released the December inflation data yesterday.