RAM Ratings has revised its headline inflation projection for 2020, to 0% from 0.7%, mainly due to weak global oil prices, generous discounts for household electricity bills and subdued demand.
While inflation remained stable at 1.5% in January-February, it is expected to ease to -0.2% in March.
“Going forward, we envisage a deflationary trend in the second and third quarters of this year. A key trigger of the downward revision is the likelihood of a deeper and more persistent weakness in oil prices amid a supply glut,” said RAM Ratings in a statement today.
Despite the recent OPEC-led agreement to cut production – the biggest on record – the move may not be enough to offset the overwhelming loss in demand amid the coronavirus pandemic.
Meanwhile, the US Energy Information Administration expects global oil demand to shrink 5.2% in 2020, more dire than the 1.0% contraction during the global financial crisis in 2009.
“As such, we have lowered our average price assumption for Brent crude by between US$35 and US$40 in 2020. This is estimated to lower full-year inflation by approximately 0.4 percentage points,” said RAM Ratings.
Another trigger of the downward revision in RAM Ratings’ projected headline inflation is the substantial discounts on electricity tariffs for households, as announced under the government’s recent stimulus packages.
Households will be entitled to a six-month (April-September) discount ranging from 2.0% to 50%, depending on their electricity consumption.
“Given the 2.7% weight of electricity in the overall Consumer Price Index basket, this initiative is estimated to ease inflation by another 0.2 percentage points,” said RAM Ratings. — April 20, 2020, Bernama
