RAM Ratings sees fuel hike pushing August inflation higher

KUALA LUMPUR: RAM Ratings expects the recent petrol hikes to fuel the inflation rate in August after four consecutive months of declines due to strengthening global crude oil prices. 

It said on Monday it expected the inflation rate to increase to 3.8% in August due to higher retail petrol prices, which averaged RM2.12 a litre in August compared to RM1.96 in July.

“This would have, in turn, raised the transport component’s contribution to overall inflation in August. 

“While the food component is envisaged to remain a key contributor of headline inflation, it is expected to slip slightly relative to earlier months as demand has moderated after the Raya festive period,” it said. 

The rating agency also retained its projected headline inflation at 3.8% for 2017. 

It said overall consumer prices were expected to increase at a slower pace in 2H 2017, given the expected moderation in contribution by the transport component as the low-base effects dissipate. 

“With the better-than-expected GDP numbers for 1H 2017 and stronger potential for demand-pull inflation to become a more prominent feature in the future, we believe that there is more room for a 25-bp hike in the overnight policy rate if the current growth momentum is maintained,”  it said.
RAM Ratings said disruptions in oil production will be pivotal to the trajectory of domestic consumer prices. 

The disrupted output and supply in Libya and the US last month, would likely shore up global oil prices in the following weeks. 

“As consumer fuel prices now closely track global oil prices, such supply disruptions will likely feed into domestic consumer price trends,” it said.