RAM Ratings sees inflation easing to 2.5% in 2018

KUALA LUMPUR: RAM Ratings expects the headline inflation to be higher in December due to higher petrol prices but forecasts it to ease to 2.5% in 2018.

The rating agency said on Tuesday it expects headline inflation rate to increase to 3.6% in December 2017 from 3.4% in November. 

The factors were mainly due to higher growth contribution by retail petrol prices where the increase in the price of RON95 accelerated to 19.7% in December. 

It pointed out retail petrol prices in December were among the highest throughout 2017 due to the rapid rise in price of Brent crude in the last two months of the year. 

“As such, we estimate full-year inflation for 2017 to be at 3.9%,” it said. 

However, for 2018, it expects headline inflation to ease to 2.5% in 2018 mainly due to lower contribution from the transport component. 

“Transport inflation is unlikely to repeat its double-digit growth trajectory in 2017, without the low-base effects from retail fuel prices,” said the head of research Kristina Fong. 

On the other hand, there are some upside risks to “food away from home” inflation (a component of overall food inflation). 

“Although upward price pressure on food inflation arising from the removal of cooking-oil subsidies will fade this year, we expect a new inflationary risk in the form of higher gas tariffs (effective January 2018), especially amid strengthening demand. 

“This could keep elevating the cost of eating out, thus exerting additional upward pressure on overall inflation and will be a factor to watch going ahead.

“We maintain our stance that there is room for tighter monetary policy, with a hike of 25 bps in the overnight policy rate (OPR) this year. 

“This will be on the back of stronger demand-pull factors amid more sustainable growth. We expect the OPR to end the year at 3.25%,” she said.