RAM anticipates rebound in headline inflation in January

Published on 23 Feb 2021.

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RAM Ratings estimates Malaysia’s inflation to rebound to 0.2% in January (December 2020: -1.4%), ending a ten-month streak of deflation. The acceleration mainly stems from a shallower deflation in the transport component amid higher fuel prices. Following global oil price recovery, the retail price of RON95 fuel climbed to an average of RM1.87/litre in January 2021 from RM1.74/litre in the preceding month. Further, the expiration of electricity discounts under the Prihatin stimulus package – which were a mainstay from April through December 2020 – will ease some deflationary pressure.

The government’s recent decision to lower the ceiling price of RON95 and diesel to RM2.05/litre and RM2.15/litre, respectively, will help limit potential inflationary pressure should the current upward trajectory in global oil prices persist. With the cost of Brent crude currently hovering around USD60 per barrel, our estimates indicate that price caps will kick in if it rises above USD65 per barrel.

Given higher global oil prices compared to last year’s and subsiding electricity deflationary pressure, we expect Malaysia’s headline inflation to average higher at 2.3% from -1.2% in 2020.

Figure 1: Transport component dragged down
inflation throughout 2020
         Figure 2: Recovery of Brent prices to lift inflation
in 2021

Sources: RAM, Department of Statistics Malaysia (DoSM), and US Energy Information Administration


Summary of RAM’s key projections

Sources: RAM, DoSM, Ministry of Finance and Bank Negara Malaysia
* Assumes no further extension of MCO 2.0 (to end on 4 Mar)
Note: 2021f figures are RAM’s projections.


Analytical contact
Nur Nadia binti Mazlan
(603) 3385 2513

Media contact
Padthma Subbiah
(603) 3385 2577


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