KUALA LUMPUR: Headline inflation rate is expected to ease to 1.8 per cent in February 2018, following two consecutive months of declines, said RAM Ratings.
The rating agency said the lower inflation in February is primarily attributable to a negative growth contribution from transport fuel amid lower retail fuel prices and high-base effects from the previous year.
As the high-base effect is expected to continue moderating contribution from the transport component, headline inflation is envisaged to ease to 2.5 per cent in 2018 from 3.7 per cent in 2017, it said.
The average price of RON95 fell two sen to RM2.26 per litre in February 2018, in contrast to the sharp upward revision of two sen to RM2.30 per litre in February 2017.
Further, RAM said the price growth of the food and non-alcoholic beverage component is expected to persist this year.
“The average growth of this component is expected to come in at 3.7 per cent this year, slightly lower than the four per cent 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. The food and non-alcoholic beverage component still carried a significant weight of 29.5 per cent in January 2018, despite having been revised downwards from 30.2 per cent,” it said.
RAM said the price of natural gas – a fuel mostly used by industry rather than households – was revised upwards in January 2018.
It said while the effective average gas tariff in first half 2018 is 23.6 per cent higher year-on- year, there is as yet no broad-based notable uptick in consumer prices.
“This indicates 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,” it said.
RAM said based on its expectations of more moderate gross domestic product growth (GDP) and inflation of a respective 5.2 per cent and 2.5 per cent in 2018, it does not envisage further hikes in the overnight policy rate this year.
“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,” it said.