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3 Jun 2016


Oil and Food Prices Accelerate to Push 2016 Inflation to 0.6% (Business Brief No.3623)

Based on the result of the latest OPEC meeting, KResearch is of the view that the price of Dubai crude oil in 2H16 will gradually edge up from USD44.0/barrel, at an annual average of USD41.0/barrel (versus the previous projection of USD37.5/barrel made in April 2016). The low 2015 base of energy price will push up headline inflation in 2H16. Moreover, given rising oil prices that accelerated above expectations, and a hike in food prices due to the prolonged drought, headline inflation in 2016 is revised up to 0.6 percent (within the range of 0.3-0.9 percent).

The headline inflation uptrend may relax pressure on further easing monetary policy, but policy consideration will have to take into account the economic recovery path over the remainder of the year. Although rising inflation reflects growing living costs amidst sluggish household income and depressed consumer purchasing power, it may contribute positive effect on export through improved agricultural prices.