Update Country Report Maldives 04 Feb 2020

Event

According to data released by the National Bureau of Statistics, consumer prices rose by 1.3% year on year in December, following an increase of 0.5% in the previous month.

Analysis

The year-on-year rise in consumer prices in December was mainly driven by a 3.7% jump in the price of food and non-alcoholic beverages. This was further supported by higher prices for utilities (housing, water, electricity, gas and other fuels) and healthcare services. These increases were, however, partially offset by a decline in prices across other segments such as information and communication, food and clothing, and transport.

Overall, consumer prices increased by an average of 0.2% in 2019. With the country heavily reliant on imports, including fuels, to fulfil its domestic needs, consumer prices move closely with international commodity prices (particularly oil prices). Following an upward revision to our global oil price forecast for 2020 (dated Brent blend) to US$65/barrel (from US$63/b previously), we believe that the moderate inflationary pressures seen in the last quarter of 2019 will persist in 2020. That said, the peg between the rufiyaa and the US dollar will ensure that that the pass-through effects from import prices will be contained. There is a significant risk that the government could look to revise the peg in 2020, with a view to weakening the currency. However, a substantial depreciation is not part of our core forecast.

Impact on the forecast

In the light of the latest data, we will revise our consumer price inflation forecast for 2020, which currently shows a 0.3% decline, to reflect a small but positive increase in consumer prices this year.