Both headline and core inflation rose 1.6% y/y in January driven by low-base effects plus a jump in transportation cost which went up 3.9% y/y in January (-1.9% y/y in December).

Going forward, the low-base effects are likely to ease, besides limited pressure from both the demand and cost side in view of: (1) a delay in the implementation of targeted fuel subsidy; and (2) an 18% reduction in toll rates for passenger vehicles using PLUS tolled highways. Hence, for the full year, inflation is likely to hover around 1.2% with an upside of 1.5%.

• January's headline inflation jumped to a 20-month high at 1.6% y/y versus 1.0% y/y in December. Likewise, core inflation, which excludes fresh food and administered prices of goods and services, also grew 1.6% y/y in January from 1.4% y/y in December. On a monthly basis, inflation rose 0.1% m/m from 0.2% m/m while core inflation stayed flat.

• The faster inflation data was driven by low-base effects. Besides, transportation price jumped 3.9% y/y from a deflation of 1.9% y/y in December. This, in part, is due to the average monthly prices of RON95, RON97 and diesel prices rising 4.9% y/y to RM2.08/litre, 12.9% y/y to RM2.58/litre, and 3.0% y/y to RM2.18/litre in January.

• Meanwhile, prices of food & non-alcoholic beverages slowed down to 0.9% y/y from 1.7% y/y in December.

• Going forward, the low-base effects are likely to ease, besides limited pressure from both the demand and cost side in view of: (1) a delay in the implementation of targeted fuel subsidy; and (2) an 18% reduction in toll rates for passenger vehicles using PLUS tolled highways. Hence, for the full year, inflation is likely to hover around 1.2% with an upside of 1.5%.

Source: AmInvest Research - 24 Feb 2020