RAM Ratings revises headline infaltion projection to 3.0 % in 2021

KUALA LUMPUR: RAM Ratings has revised its headline inflation projection for 2021 to 3.0 per cent from 2.3 per cent due to higher sustained average Brent crude prices driven by positive sentiment, controlled output by OPEC+ and winter storm disruptions in the United States.

In a statement, RAM Ratings said Brent crude prices remain a key driver of its inflation forecast for 2021, the prices of which it has pegged at US$60 per barrel this year compared to previous estimate of US$45 to US$50 per barrel.

“While prices are envisaged to moderate in the second half of 2021 as production gradually increases, they should still be supported by stronger demand relative to 2020,” it said.

RAM Ratings said every US$5 movement in the average price of Brent crude is estimated to alter Malaysia’s 2021 headline inflation by about 0.4 percentage points, barring any second-round effects on prices.

However, the inflationary impact of further price increases beyond US$60 per barrel is capped by the fuel price ceiling currently in place.

It said the average price of RON95, a key driver to transport fuel inflation, climbed 17.6 per cent year-on-year (y-o-y) to RM2.05 per litre in March.

It showed a stark contrast to the 5.7 per cent y-o-y contraction in February, amid higher crude oil prices and more pronounced lowbase effects.

RAM Ratings is estimating that March’s headline inflation had accelerated to 1.7 per cent from 0.1 per cent in February.