KUALA LUMPUR, Malaysia RAM Rating Services Bhd (RAM Ratings) forecasts Malaysia’s headline inflation to remain at 2.5 per cent this year — the same as last year — underpinned by lower contribution from the transport component.

The rating agency said transport inflation was unlikely to repeat last year’s double-digit growth trajectory without the low-base effects from retail fuel prices.

That said, food inflation could well accelerate this year on account of stronger consumption and the potential spill-over effects from the upward revision of gas tariffs, it said in a statement yesterday.

RAM Ratings said durable goods inflation, which had been moderating since mid-2016 amid sluggish discretionary spending, also might experience a greater impetus for price growth as purchasing power improved.

On the headline inflation for January, the agency said the figure was expected to fall to 2.9 per cent from 3.5 per cent in the preceding month, mainly due to lower growth contributed by transport fuel amid the high-base effects from the previous year.

It noted that average RON95 fuel prices stayed relatively stable (up one sen) at RM2.28 per litre from December 2017 to January 2018.

Meanwhile, RAM Ratings said it expected the overnight policy rate (OPR) to remain at 3.25 per cent for the rest of the year following the 25-basis point increase by Bank Negara Malaysia (BNM) last month. (BNM is Malaysia’s central bank)

The agency said this forecast was guided by expectations of more moderate gross domestic product (GDP) growth and inflation at 5.2 per cent and 2.5 per cent, respectively, in 2018.

However, it said BNM’s future actions were expected to be data-dependent so another rate hike might be warranted if GDP growth surprised on the upside and inflationary risk increased.

Source: NAM News Network