KUALA LUMPUR (March 20): RAM Rating Services Bhd (RAM Ratings) expects Malaysia’s headline inflation rate to fall to 1.8% in February 2018, mainly due to lower retail fuel prices and high-base effects from 2017.

“The average price of RON95 fell 2 sen to RM2.26 per litre in February, in contrast to the sharp upward revision of 20 sen to RM2.30 per litre in February 2017. 

"As the high-base effect is expected to continue moderating contribution from the transport component, headline inflation is envisaged to ease to 2.5% in 2018,” the ratings agency said in a statement today.

January's headline inflation fell to 2.7%, from 3.5% in December 2017.

Meanwhile, RAM Ratings expects price growth for the food and non-alcoholic beverage component to continue in 2018, averaging at 3.7%, slightly lower than the 4% in 2017 as some of the one-off cost-push factor fades.

The component remains the key driver of headline inflation, with weightage remaining significant at 29.5% in January, despite having been revised downwards from 30.2%, RAM Ratings said.

On natural gas price — which RAM Ratings noted is mostly used by industry rather than households — it said there has not been a notable uptick in consumer prices, despite the 23.6% year-on-year increase in average gas tariff in the first half of 2018. It attributed this to businesses having not passed on the cost increase.

"We will continue monitoring the market’s willingness to pass on this cost increase to assess the risk to overall inflation in 2018," the statement said. 

The agency went on to say that it does not expect further hikes in the overnight policy rate in 2018, based on its expectations of more moderate gross domestic product (GDP) growth of 5.2% and inflation of 2.5%.

“Despite our base-case assumption, Bank Negara Malaysia’s future actions are expected to be data-dependent. Another rate hike may be warranted if GDP growth surprises on the upside and inflationary risk heightens,” RAM Ratings added.