In April, headline inflation read at 0.2% y/y, unchanged from March but missed market expectations of 0.4%. However, inflationary pressure still remained in the negative region when averaged for the first four months at -0.2%. Likewise, core inflation in April grew at the same pace as in March, at 0.5% y/y.

Looking forward, we expect an uptick in inflation print owing to a low base effect in view of the 3-month tax holiday in 2018 as well as a weaker MYR against the US dollar, which recorded a YTD loss of 1.3% to the 4.19 levels. However, we believe underlying inflation could stay fairly muted in the near term underpinned by softening domestic sentiments, added with volatile global crude oil prices. Hence, we maintain our full-year inflation target at 1.0%, and we believe BNM will keep rates unchanged after instituting one cut in early May.

• In April, headline inflation read at 0.2% y/y, unchanged from March but missed market expectations of 0.4%. However, inflationary pressure still remained in the negative region when averaged for the first four months at -0.2%. Likewise, core inflation in April grew the same pace as in March, at 0.5% y/y.

• Looking at the subsectors, price pressure in the economy was seen rather lacklustre almost across the board. Both cost of food & non-alcoholic beverages and utilities rose 1.1% y/y and 2.0% y/y, respectively in April, the same as in the month of March. Besides, the drag in inflation was partly driven by a further decline in the clothing & footwear subsector at -3.2% y/y versus -3.0% y/y.

• Though the decline in cost of transport was smaller — in April at -2.6% y/y from -3.0% y/y in March —fuel pump prices of both RON95 and diesel were lower on an annual basis. The former recorded a decline of 5.5% y/y in April (RM2.08/litre) from -5.4% y/y in March while the latter recorded a 0.0% y/y growth (RM2.18/litre) compared with a 0.3% y/y in March. However, RON97 accelerated to 9.5% y/y in April (RM2.71/litre) from 1.9% y/y in March (RM2.51/litre).

• Looking forward, we expect an uptick in inflation print owing to a low base effect in view of the 3-month tax holiday in 2018 as well as a weaker MYR against the US dollar, which recorded a YTD loss of 1.3% to the 4.19 levels. However, we believe underlying inflation could stay fairly muted in the near term underpinned by softening domestic sentiments, added with volatile global crude oil prices. Hence, we maintain our full-year inflation target at 1.0%, and we believe BNM will keep rates unchanged after instituting one cut in early May.

Source: AmInvest Research - 27 May 2019