Core inflation could only hit 1.6% in 2018.
Despite a bullish macro outlook and expectations for a turnaround in the labour market and domestic consumption, the Bank of America Merrill Lynch (BofAML) said it's not yet time for a surge in underlying inflation.
According to an analysis, in 2018, core inflation is expected to increase only marginally to 1.6% from around 1.5% this year.
Moreover, smaller price increases in energy components could dampen core inflation despite the expected re-emergence of demand pull price pressures.
Meanwhile, headline inflation is expected to be muted at around 0.9% as a likely recovery in rentals will only affect accommodation inflation with a lag of around four quarters.
"In our view, inflation will only return close to its historical average in 2019 as the output gap turns positive. We forecast core inflation at 1.8% in 2019 and headline at 1.7%," said BofAML analyst Mohamed Faiz Nagutha.
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