Update Country Report Maldives 12 Nov 2019

Event

According to the National Bureau of Statistics, consumer prices were unchanged in September, compared with the same month last year. This is in contrast to the rate in August, when consumer prices fell by 0.4% year on year.

Analysis

Consumer price inflation has been subdued throughout 2019, with prices declining (on a year-on-year basis) in four out of the first nine months of this year. Although there were signs of a pick-up in consumer price growth in the second quarter, they fizzled out in the third quarter. In September prices of restaurants and accommodation services increased by a healthy 4.7% year on year, while utilities prices increased by 2.8%. However, these increases were offset by a fall in the food, clothing and footwear categories, as well as information and communication services.

The country is heavily reliant on imports, including fuels, to meet its domestic needs. However, the local currency is pegged to the US dollar, which largely insulates the prices of imported goods from the effects of exchange-rate fluctuations. Nevertheless, lower global energy prices have exerted downward pressure on prices through secondary effects. Our view is that energy prices will remain relatively low this year compared with 2018, which will help to keep a lid on price pressures in the final months of this year, when we expect to see consumer prices increasing by less than 0.5% on a year-on-year basis. There is a risk that energy prices could decline at a much faster rate than we are expecting, which would result in two consecutive years of deflation.