Update Country Report Maldives 30 Jun 2020

Event

According to the National Bureau of Statistics, consumer prices fell by 3.6% year on year in April, after remaining unchanged in March.

Analysis

Consumer price inflation has been lacklustre for many months now, with the monthly inflation rate frequently slipping into negative territory. However, the drop in prices recorded in April was much more pronounced than any in the preceding 24 months.

The decline in consumer prices was led by a 12.5% year-on-year decrease in prices for utilities (housing, water, electricity, gas and other fuels) and a 12.6% fall in the price of information and communication services. The cost of transport also declined in comparison with the year-earlier period. The fall in prices for utilities and transport was driven largely by substantially lower global crude oil prices (compared with 2019). Prices of food and non-alcoholic beverages rose by 3.8% year on year and helped to offset partially the dip across the aforementioned categories.

We believe that deflation in consumer prices will persist in the coming months. The country is largely dependent on imports, including fuel, to meet its domestic demand. Consumer prices are therefore responsive to movements in international commodity prices (particularly oil prices). However, pass-through effects from import prices are likely to be marginal, as the authorities operate a fixed exchange-rate regime, with the local currency, the rufiyaa, pegged to the US dollar. On the whole, an anticipated decline in global oil prices in 2020 and the sluggish recovery of domestic demand will ensure that consumer price inflation stays in the red this year.

Impact on the forecast

The latest data are slightly weaker than we had expected. We will therefore revise down our consumer price inflation forecast modestly to reflect a deeper decline in prices in 2020 than the currently forecast 0.6%.