Selangor Journal
Hazy weather condition is seen in Kuala Lumpur following heavy rain, reducing the heat of the hot weather in the country, on March 7, 2021. — Picture by BERNAMA

RAM Ratings revises Malaysia’s headline inflation projection to 3.0 pct in 2021

KUALA LUMPUR, April 22 — RAM Ratings has revised its headline inflation projection for 2021 to 3.0 per cent from 2.3 per cent due to higher sustained average Brent crude prices driven by positive sentiment, controlled output by OPEC+ and winter storm disruptions in the United States.

In a statement, RAM Ratings said Brent crude prices remain a key driver of its inflation forecast for 2021, the prices of which it has pegged at US$60 per barrel this year compared to the previous estimate of US$45 to US$50 per barrel.

“While prices are envisaged to moderate in the second half of 2021 as production gradually increases, they should still be supported by stronger demand relative to 2020,” it said.

RAM Ratings said every US$5 movement in the average price of Brent crude is estimated to alter Malaysia’s 2021 headline inflation by about 0.4 percentage points, barring any second-round effects on prices.

However, the inflationary impact of further price increases beyond US$60 per barrel is capped by the fuel price ceiling currently in place.

It said the average price of RON95, a key driver to transport fuel inflation, climbed 17.6 per cent year-on-year (y-o-y) to RM2.05 per litre in March.

It showed a stark contrast to the 5.7 per cent y-o-y contraction in February, amid higher crude oil prices and more pronounced low-base effects.

RAM Ratings is estimating that March’s headline inflation had accelerated to 1.7 per cent from 0.1 per cent in February.

Meanwhile, inflation for all the other sub-components is expected to remain subdued due to still sluggish demand and a negative output gap.

“The electricity tariff rebate in the first half of 2021 under the imbalance cost pass-through mechanism will also help mitigate inflationary pressure,” it said.

— Bernama

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