KUCHING: RAM Ratings (RAM) expects Malaysia’s inflation to ease to 3.7 per cent in June this year — signalling a third successive month of inflationary decline — on the back of easing inflation pressures from fuel prices.
According to the ratings agency, the price of RON95 petrol was revised downwards every week throughout June; this caused the average price to fall to a five-month low of RM2 per litre, compared to RM2.09 per litre in May, and reducing the contribution of the transport component to headline inflation.
“By contrast, food prices charted a slightly faster pace of growth as a run-up in demand leading up to the month of Ramadan and Hari Raya Aidilfitri had created some upward pricing pressure,” the ratings firm said in a statement.
“Nevertheless, given the price-control scheme in force during the festive season, food prices in June are unlikely to have accelerated much from the 4.4 per cent for May.”
RAM expected some of this pricing pressure to taper off as the festive season comes to a close, predicting prices to normalise through the rest of the year. RAM has maintained its projected headline inflation at 3.8 per cent for 2017.
The ratings firm expected food and transport fuel to remain the key drivers of overall price growth this year.
“Although the current upward price momentum is still primarily cost-push driven, the faster pace indicates a stronger potential for demand-pull inflation to become more prevalent,” it said.
As such, the ratings firm believed that there is room for a 25-basis point (bp) hike in the overnight policy rate towards the end of the second half o 2017 (2H17).