Update Country Report Maldives 31 May 2019

Event

According to the National Bureau of Statistics, consumer prices rose by 0.9% year on year in April, following a decline of 1.2% in March.

Analysis

Year-on-year growth in consumer prices turned positive in April, for the first time since November 2018. Although food prices continued to decline compared with the year-earlier period, fruit prices rose by a sharp 24%. Housing and utilities costs increased by 2.9% year on year, largely driven by a 4.7% rise in housing rental costs-which recorded identical rates of growth in the first four months of 2019, reflecting an increase in rents at the start of the year. The overall growth in consumer prices was also supported by healthy increases in the costs of transport, communications, and restaurants and hotels.

We believe that the pick-up in consumer price inflation is unlikely to prevail in the coming months. The country is largely dependent on imports, including fuels, to meet its domestic demand. Consumer prices are therefore responsive to movements in international commodity prices (particularly oil prices). An expected decline in global oil prices in 2019 will ensure that inflationary pressures remain subdued. Meanwhile, pass-through effects from import prices are likely to be marginal as the authorities operate a fixed exchange-rate regime, with the rufiyaa pegged to the US dollar.

Impact on the forecast

Despite the slight increase in consumer prices in April, we maintain our view that they will contract by an average of 0.3% in 2019, compared with a decline of 0.1% in 2018.