RAM sees inflation at 1.6% in March

KUALA LUMPUR: RAM Ratings expects headline inflation to edge up to 1.6% in March due to an anticipated increase in food prices.

It said in a statement that slightly higher consumer price index (CPI) in March would be due to food inflation, which temporarily dipped to 3% in February from 3.8% in January.

“However, some of this upward pressure will be offset by a negative growth contribution from transport fuel amid lower retail fuel prices, which fell 4.4% year-on-year,” it said.

The CPI in February dropped to its lowest level of 1.4% since October 2016.

RAM Ratings said as the high-base effect was expected to continue to moderate the contribution from the transport component, headline inflation was expected to ease to 2.5% in 2018 after growing by 3.7% in 2017.

Producer price index, a forward-looking indicator of CPI inflation, had charted negative growth in both January and February this year, declining a sharp 1.2% and 3.4%, respectively.

“This seems to signal that the pass-through of costs from businesses to consumers may be limited and, hence, less likely to be a source of consumer inflationary pressure,” its head of research Kristina Fong said.

RAM Ratings said the strengthening ringgit this year would help contain any risks of imported inflation. Import price growth has been on a downtrend for the past 12 months.

The ringgit is expected to appreciate by 9.3% to an average of RM3.90 per US dollar from last year’s average of RM4.30.

However, RAM Ratings said there might be some risks of marginal demand-pull inflation in the second half of the year.

It pointed out to the impending review and potential revision of the minimum wage in the second half, which may result in faster-than-anticipated private consumption growth.

“Based on our expectations of more moderate GDP growth and inflation of 5.2% and 2.5%, respectively, in 2018, we do not envisage further hikes in the overnight policy rate this year.

“Despite our base-case assumption, Bank Negara’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.