KUALA LUMPUR, May 23 2016 : The headline inflation rate is expected to remain manageable at between 2.0 and 2.5 per cent level for this year compared to 2.1 per cent in 2015 on weak pressure to inflation.
RHB Research Institute said the pressure would likely be mitigated by the continued low energy and commodity prices, coupled with a slowdown in domestic demand.
“Slower consumer spending, a downturn in the property sector and elevated household debt, will likely place a lid on inflation pressure going forward,” the research house said in a note today.
RHB Research expects the adjustments in administered prices and the weaker ringgit exchange rate to likely push up prices of imported goods and exert some upward pressure on inflation this year.
The end of a moratorium on profit margins following the implementation of the Goods and Services Tax would likely exert some price pressure on goods and services in the second half of 2016 as well.
Since end-2015, domestic retail fuel prices have seen a sharp reduction of about between 18 and 29 per cent in the first quarter of this year (1Q16).
But, a subsequent recovery in global oil prices to above US$40 per barrel has resulted in a 5.1-14.8 per cent hike in domestic fuel prices in April.
Last Friday, the Statistics Department announced that the Consumer Price Index (CPI), used to gauge inflation, improved from 2.6 per cent year-on-year in March to 2.1 per cent in April, the slowest yearly increase since May last year.
This was due to a broad-based decrease in the price inflation of major items due to base effects with the exception of transport, which saw a 10-20 sen increase in retail fuel prices.
Meanwhile, Kenanga Research has maintained its 2016 average inflation forecast of 2.6 per cent, but acknowledged the downside risks to its expectations due to weak demand-pull influences.
“The forecast assumes Brent Crude prices to end the year at US$47 per barrel. Therefore, risk would be skewed to the downside if oil prices fall short of the target.
“Though Brent Crude is currently just a whiskers’ away from US$50 per barrel, the downside risk remains as market and sentiment would likely influence its price direction,” it added. – Bernama