Friday 29 Mar 2024
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KUALA LUMPUR (March 1): MIDF Research has lowered its inflation forecast for 2016 to 2.6%, from 2.9% previously, following the 15 sen cut in RON95 petrol for March.

In a note today, the research house said the 15 sen cut for RON95 petrol to RM1.60 per litre brings the price to its lowest since 2006, beating the previous low of RM1.75 per litre seen in February 2015.

Meanwhile, RON97 petrol was reduced by 10 sen to RM1.95 per litre, while the price of diesel was maintained at RM1.35 per litre.

“RON95, the petrol oil that is used by majority of consumers, was cut by 15 sen in March, leading to RM1.60/litre for the month. This price movement confirmed our expectation that the petrol price was set by looking at the average price for the last 3-months,” it said.

Based on historical inflation data, MIDF said a 10 sen cut in RON95 prices translated into a 35 basis points (bps) reduction in inflation, while a 10 sen increase would result in an increase of 40 bps. Overall, the petrol price contributes about 8.7% to the consumer price index (CPI), it said.

“Due to the petrol price, we are revising our inflation forecast for year 2016 to 2.6%, and 4.1% for February, down from the previous 2.9% and 4.2% respectively.

“This forecast is based on the assumption that the oil price will remain low for the first half of 2016, and will begin to rebound in the second half, in line with the expectation of our oil and gas analyst,” said the research house.

MIDF also noted the removal of subsidy for the 25kg bag wheat flour, which translates into a 24% increase in price to RM42, from RM33.75 previously, while the 1kg bag wheat flour subsidy was maintained.

Despite an overall contribution of 0.37% to the overall CPI by flour and other cereal grains, it said the impact from the removal of subsidy for the 25kg bag may not be reflected in the sub-index, as the subsidy for the 1kg bag remained.

“The indirect impact, particularly the impact of the subsidy removal towards food away from home which constitutes 10.04% of the CPI, could be noteworthy, albeit the impact to the overall CPI is at best marginal,” said MIDF.

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