PETALING JAYA: RAM Ratings has revised its headline inflation projection in 2020 to 0.0% from 0.7% attributed to weak global oil prices, generous discounts for household electricity bills, and subdued demand.
It pointed out that while inflation remained stable at 1.5% in January-February, it is expected to ease to -0.2% in March.
“Going forward, we envisage a deflationary trend in the second and third quarters of this year,” said the ratings agency in a report.
It highlighted that a key trigger of the downward revision is the likelihood of a deeper and more persistent weakness in oil prices amid a supply glut.
RAM Ratings observed that despite the recent OPEC-led biggest on record production cuts, the move may not be enough to offset the overwhelming loss in demand amid the coronavirus pandemic.
According to the US Energy Information Administration, global oil demand is expected to shrink 5.2% in 2020, more dire than the 1% contraction seen during the global financial crisis in 2009.
“As such, we have lowered our average price assumption for Brent crude by US$5 per barrel in 2020, to between US$35 and US$40. This is estimated to lower full year inflation by approximately 0.4 percentage points,” said the ratings agency.
Aside from that, it identified substantial discounts on electricity tariffs for households, as announced under the Government’s recent stimulus packages as another trigger for the downward revision in the projected headline inflation.
Under the stimulus package, households will be entitled to a six-month (April-September) discount ranging from 2% to 50%, depending on their electricity consumption.
“Given the 2.7% weight of electricity in the overall CPI basket, this initiative is estimated to ease inflation by another 0.2 percentage points,” said RAM.
Source: The Sun Daily