KUALA LUMPUR, Nov 21 — RAM Ratings expects the headline inflation rate to moderate to 4.0 per cent in October, from the 4.3 per cent recorded in September.

"The slower pace of consumer price increase was attributable to the weaker contribution from the transport fuel component amid the tapering low-base effects of retail petrol prices,” said the rating firm in a statement today.

The uptrend in global crude oil prices has been unexpectedly steep heading into the final quarter of 2017, with the average price of Brent crude surging to its highest level (since June 2015) of US$57.50 (RM238.25) per barrel in October.

"That said, we expect the dissipating low-base effects from retail petrol prices (on the transport component) and the tapering of the inflationary impact from the removal of cooking-oil subsidies in November (on the food component) to offset some of this unanticipated pressure,” it added.

Moving forward, the elevated headline inflation in 2017 was envisaged to moderate to 2.5 per cent next year amid easing direct cost-push factors.

"We expect Brent crude price in 2018 to average close to this year’s level at US$55 per barrel. This trend, along with the absence of further spikes in food prices, will reduce the significance of the incremental lift from the food and transport components in 2018,” it added.

The rating firm also maintained its call that there was room for tighter monetary policy, with a hike of 25 basis points in the overnight policy rate (OPR) next year, backed by stronger demand-pull factors amid a more sustainable growth momentum in 2018.

"We expect the OPR to end the year at 3.25 per cent. This is also consistent with the more hawkish tone of the central bank’s last monetary policy statement for this year,” said RAM Ratings. — Bernama