RAM Ratings: Muted inflation in December 2018; projected 2.0% for 2019 amid lower fuel prices

Published on 23 Jan 2019.

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Inflation is estimated to inch up to 0.3% in December 2018 (November: 0.2%), amid dissipating deflationary pressures from the transport fuel component. The price of RON95 petrol fell 3.3% y-o-y the same month, following a 4.5% drop in November. As such, overall inflation is envisaged to come in at 1.0% in 2018.

RAM has revised its projection for 2019 headline inflation to 2.0%, from the initial 2.7%. This is mainly due to changing expectations on global oil prices, which are increasingly pointing to a lower average range of USD60-USD65/barrel for 2019. Our sensitivity analysis indicates that for every USD5/barrel move in the price of Brent crude, headline inflation potentially changes 0.3 percentage points. 

The move back to the weekly Automated Pricing Mechanism (APM) for pump prices - effective January 2019 - is not expected to exert any significant downward pressure on inflation given the short period it will be in place ahead of the anticipated targeted fuel subsidy mechanism to be implemented in 2Q 2019. Moreover, global oil prices are also expected to trend a little higher compared to the start of the year. “An escalation in oil prices beyond RM 2.20/litre will trigger the use of subsidies to maintain this ceiling. This will also contain inflationary pressure,” notes Kristina Fong, RAM’s head of research.  


Analytical contact
Woon Khai Jhek, CFA
(603) 7628 1093

Media contact
Padthma Subbiah
(603) 7628 1162


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Publication Date Published Category
Economic Insight: December 2018 CPI 23-Jan-2019 Economic Insight View PDF