RHB Research trims Malaysia’s 2020 headline inflation forecast to 1pc

Heavy traffic is seen along the LDP on day seven of the movement control order in Petaling Jaya March 24, 2020. According to RHB Investment Bank Bhd Research, the implementation of movement restrictions by the government are likely to keep inflation weak, at least throughout the first half of the year. — Picture by Shafwan Zaidon
Heavy traffic is seen along the LDP on day seven of the movement control order in Petaling Jaya March 24, 2020. According to RHB Investment Bank Bhd Research, the implementation of movement restrictions by the government are likely to keep inflation weak, at least throughout the first half of the year. — Picture by Shafwan Zaidon

KUALA LUMPUR, March 25 — RHB Investment Bank Bhd Research (RHB Research) has revised downward its 2020 headline inflation forecast for Malaysia to one per cent from two per cent earlier, due to weak global commodity prices and lower aggregate demand amid the government’s Covid-19 containment measures.

In a note today, its economist Ahmad Nazmi Idrus said the country’s inflation rate slowed to 1.3 per cent year-on-year (y-o-y) in February 2020 from 1.6 per cent y-o-y in January 2020.

Similarly, core inflation also moderated to 1.3 per cent y-o-y in February 2020 from 1.6 per cent in January this year, he said, citing data released by the Department of Statistics Malaysia today.

“Much of the softening in inflation for the month can be attributed to the lowering of retail fuel prices to RM2.04 per litre from RM2.08 (for RON95) following softening global crude oil prices.

“In addition, the advent of Covid-19 has led to a drop in airline passenger arrivals, which caused airfares to drop in tandem,” he said.

Ahmad Nazmi said in March, crude oil prices started to fall more significantly, reaching as low as US$30 (RM132) per barrel from an average of US$55 per barrel in February.

“This also caused domestic retail fuel prices to decline in tandem, and is likely to suppress inflation in the months ahead,” he said.

In addition, he said, the implementation of movement restrictions by the government — and its possible negative implications to aggregate demand — are likely to keep inflation weak, at least throughout the first half of the year.

“As a result, we revise our headline inflation forecast to one per cent in 2020, with greater bias on the downside, if global commodity prices remain weak for longer, or the pandemic appears more difficult to handle.

“This is likely to prompt more hardline measures by the government,” he added. — Bernama

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