KUALA LUMPUR (July 11): Headline inflation is expected to average at 4.5% for this year, based on the price point for RON95 to hover between RM2.10 and RM2.30 per litre throughout 2017, said MIDF Amanah Investment Bank Bhd's research unit (MIDF Research).

Core inflation would remain stable at a range of 2.3% to 2.5%, reflecting modest pace in demand push factors, MIDF said in its third quarter outlook report today.  

“Based on forecast by our oil and gas analyst who expects crude oil price to average at US$50 per barrel for 2017 — plus a slight appreciation in the ringgit, we think it is rational to expect RON95 to hover between RM2.10 — RM2.30 per litre throughout the year.

“At that price point for RON95, we expect inflation to average at 4.5% for 2017,” MIDF added in its report.

It should be noted Bank Negara Malaysia expects headline inflation to average between 3% and 4% this year, compared with 2.1% in 2016.

Meanwhile, MIDF expects the current account to improve, bucking the downtrend since 2011. It reiterated its forecast on the ringgit to dollar exchange rate to end at 4.20 by year end.

“In 2016, current account to gross net income ratio was 2.1%. This could lend some support to ringgit to strengthen from the current level of US dollar/RM4.20 by year-end of 2017.

“Higher commodity prices have so far translated into better terms of trade, which in turn drive bigger trade surplus. For the first four months of the year, trade balance reached RM27.6 billion,” MIDF added.

On the FBM KLCI, the research house said despite the ever present 'noises' from short-term price volatility due to market sentiment and other situational issues, observations of the trend between earnings are price are conclusive with regards to the nature of their secular direct relationship.

Hence, in the longer term, our assessment on the likely path of the FBM KLCI is highly dependent on its expected earnings growth performance during the coming periods.

“On that account, the (Bloomberg consensus) FBM KLCI earnings are estimated to grow by 5.2% y-o-y in 2017 and to grow further by a projected 5.9% y-o-y in 2018.

“Thus, amid the ever present market 'noises’, we foresee an upward bias in the trajectory of FBM KLCI, going forward.

"Premised on the better earnings growth, we reiterate our 2017 FBM KLCI target at 1,830 points, which equates to PER17 of 17.1x," it said.