This article first appeared in The Edge Financial Daily on January 24, 2019

KUALA LUMPUR: RAM Rating Services Bhd has cut its projection for 2019 headline inflation to 2% from the initial 2.7% due to changing expectations on global oil prices, which it said are increasingly pointing to a lower average range of US$60-65 per barrel this year.

“Our sensitivity analysis indicates that for every US$5 (RM20.70) per barrel move in the price of Brent crude, headline inflation potentially changes 0.3 percentage points,” it said in a statement yesterday.

The rating agency also said the government’s move back to the weekly Automated Pricing Mechanism (APM) for pump prices effective January 2019 is not expected to exert any significant downward pressure on inflation.

This is due to the short period it will be in place ahead of the anticipated targeted fuel subsidy mechanism to be implemented in the second quarter of 2019, it said.

Global oil prices are also expected to trend a little higher compared to the start of the year, it added.

“An escalation in oil prices beyond RM2.20 per litre will trigger the use of subsidies to maintain this ceiling. This will also contain inflationary pressure,” RAM head of research Kristina Fong said.

Last year’s inflation is estimated to have inched up to 0.3% in December from 0.2% in November amid dissipating deflationary pressures from the transport fuel component.

“The price of RON95 petrol fell 3.3% year-on-year the same month, following a 4.5% drop in November. As such, overall inflation is envisaged to come in at 1% in 2018,” RAM added.