January 2020 inflation to rise amid higher transport fuel costs

RAM Ratings expects Malaysia’s overall inflation rate to rise to 1.8 percent in January 2020 from 1.0 percent in the preceding month, underpinned by higher transport fuel inflation amid the low-base effects of retail fuel prices.

The average price of RON95 petrol rose 4.9 percent year-on-year in January 2020, in contrast to the 5.5 percent contraction in December 2019.

While the duration and severity of Covid-19 remain uncertain, it has already depressed world oil prices as China, the epicentre of the outbreak is the second-largest source of global demand.

“That said, our base-line assumption for Brent crude prices to average around US$55-US$60 per barrel this year still holds, albeit with a downside skew, given the current dampened state of the economy.

“However, if Brent crude were to hover around US$50 per barrel through the whole of 2020, headline inflation could fall to 1.2 percent, from our current forecast of 1.7 percent in 2020,” the rating agency said in a statement today.

Given the significant risk that Covid-19 could derail economic growth, RAM Ratings expects Bank Negara Malaysia to cut the overnight policy rate again in the next six months to 2.50 percent for the year.

The move would provide some respite and greatly assist businesses during the period of uncertainty and economic stress, it added.

In the same vein, the targeted fuel subsidies programme, which would have floated consumer fuel prices to market levels, may also be put on the backburner to sustain household spending.

RAM Ratings said the downtrend of global oil prices provides some leeway for the delay without compromising fiscal spending.

- Bernama