Published on 16 Dec 2019.
RAM Ratings expects Malaysia’s overall inflation rate to stay little changed at 1.0% in November, only a tad lower than the 1.1% of the preceding month. The slight decrease is largely underpinned by a smaller contribution from the alcoholic beverages and tobacco component, as it decelerates against high-base effects from 2018.
With December’s inflation expected to maintain this trend, average overall inflation is anticipated to clock in at 0.7% for the year, before accelerating to 1.9% in 2020. The uptick in inflation will be mainly driven by the proposed fuel price float for Peninsular Malaysia effective next January.
The recent decision by OPEC and allied oil-producing nations to further cut supply by 1.7 million barrels/day (from the current 1.2 million barrels/day) presents potential upside risk to the trajectory of global oil prices in 2020. “There could be some upside to our inflation forecast of 1.9% next year, depending on the effectiveness of the additional OPEC supply cuts which will last until March 2020. However, the magnitude of the run-up in prices will depend on the quantum of non-OPEC supply coming into the market and the state of global demand,” highlights Kristina Fong, RAM’s head of research. These countervailing forces will temper the potential upside to our initial expectations on global oil prices and, in turn, domestic inflationary pressure. Based on our estimates, every USD5 move in the average price of Brent crude will alter 2020 headline inflation by approximately 0.3 percentage points.
Woon Khai Jhek, CFA
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