Inflation to pick up in September on higher oil prices: RAM Ratings

PETALING JAYA: RAM Ratings expects the inflation rate to climb further to 4.6% in September or 0.9 percentage points (ppt) higher than the 0.5ppt increase in August, amid rise in oil prices.
“The faster pace of consumer price increases is underpinned by higher retail petrol prices, which averaged RM2.19/litre in September (compared with RM2.12 in August) amid the relatively steep uptrend in global crude prices,” it said in a statement today.
The average price of Brent crude surged to US$56.15/barrel in September, the highest level since July 2015. RAM said this would have raised the transport component’s contribution to overall inflation in September.
RAM maintained its projected headline inflation at 3.8% for 2017 while overall consumer prices are expected to increase at a slower pace of 3.5% in 2H 2017, given the expected moderation in contribution by the food and transport components as the low-base effects dissipate, particularly in 4Q 2017.
“However, the recent moderation in core inflation has tipped our expectation back to a pause at 3.00% for the overnight policy rate this year. Nevertheless, we reiterate that there is some scope for the tightening of monetary policy given the initial acceleration of gross domestic product growth and inflation,” it said.
It noted that there will be a lean towards further tightening if core inflation surprises on the upside and exhibits some persistent destabilising influence.
RAM said the core inflation rate has been skewing towards a steeper trend since the start of the year, having risen from 2.3% in January to a 13-month high of 2.6% in May, before moderating to 2.4% in August.
“Such upward pressure has been mainly driven by the food component, which had accelerated during the same period. Notably, the higher core inflation for the food component was partly due to the removal of cooking-oil subsidies,” it said.
As this amplifies the rate of inflation, the underlying drivers of the upward trajectory still indicate healthier demand and the potential for more demand-pull inflation in the future.