RAM revises headline inflation forecast

Published on 20 Apr 2020.

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RAM Ratings has revised its headline inflation projection for 2020, from 0.7% to 0.0%. This is mainly due to weak global oil prices, generous discounts for household electricity bills, and subdued demand. While inflation remained stable at 1.5% in January-February, it is expected to ease to -0.2% in March. Going forward, we envisage a deflationary trend in the second and third quarters of this year.

A key trigger of the downward revision is the likelihood of a deeper and more persistent weakness in oil prices amid a supply glut. Despite the recent OPEC-led agreement to cut production – the biggest on record – the move may not be enough to offset the overwhelming loss in demand amid the coronavirus pandemic. The US Energy Information Administration expects global oil demand to shrink 5.2% in 2020, more dire than the 1.0% contraction during the global financial crisis in 2009. 

As such, we have lowered our average price assumption for Brent crude by USD5/barrel in 2020, to between USD35 and USD40. This is estimated to lower full-year inflation by approximately 0.4 percentage points.

Another trigger of the downward revision in our projected headline inflation is the substantial discounts on electricity tariffs for households, as announced under the Government’s recent stimulus packages. Households will be entitled to a six-month (April-September) discount ranging from 2% to 50%, depending on their electricity consumption. Given the 2.7% weight of electricity in the overall CPI basket, this initiative is estimated to ease inflation by another 0.2 percentage points.


Analytical contact
Woon Khai Jhek, CFA
(603) 3385 2512

Media contact
Padthma Subbiah
(603) 3385 2577


About RAM Rating Services Berhad (RAM Ratings)

Established in 1990, RAM Ratings is a leading credit rating agency registered under the Securities Commission’s Guidelines on Registration of Credit Rating Agencies, 2011. In addition to the provision of credit ratings for corporate bonds and sukuk and their issuers, RAM Ratings also provides research and publications on Islamic finance, fixed income and macro-economic and industry analysis as well as data analytics relating to credit risk, counterparty assessments and other related domains. 


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