The streak of negative inflation stretched to the third consecutive month into May, with the headline inflation falling at the same pace as April’s by 2.9% y/y. Thus, average inflation for the first five months slid by 0.6% y/y. Core inflation, which excludes fresh food and administered prices of goods and services, grew at a slower pace by 1.1% y/y from 1.3% y/y in April, bringing the first five months average to 1.3%. Transportation cost fell for the third month in a row by 20.8% y/y in May, while food and non-alcoholic beverage prices rose at the same pace as in April by 1.2% y/y despite being the Hari Raya festive season, impacted by the CMCO.

Going forward, the inflation outlook remains weak. It is more likely to remain in the deflationary region. This is despite global crude oil prices that are seen to have stabilised. However, the current economic outlook remains weak, as reflected by April’s Leading index (LI) which fell further by 5.5% y/y from -3.6% y/y in March — the lowest since February 2009 — impacted by the MCO that disrupted supply and demand. The labour market was languid, with unemployment at 5% in April. There will also be an impact from social distancing. On that note, headline inflation is likely to hover between -0.6% and -1.5%

• The streak of negative inflation stretched to the third consecutive month into May with the headline inflation falling at the same pace as April’s by 2.9% y/y, slightly higher than market consensus of -2.8% y/y. Thus, average inflation for the first five months fell by 0.6% y/y versus -0.1% y/y for the same period a year ago. Core inflation, which excludes fresh food and administered prices of goods and services, grew at a slower pace by 1.1% y/y from 1.3% y/y in April, bringing the first five months average to 1.3%.

• Transportation cost slid for the third month in a row by 20.8% y/y in May from -21.5% y/y in April. This is despite the slight rise in the month of May’s pump prices where RON95 rose to RM1.30/liter (Apr: RM1.27/liter); and RON97 was raised to RM1.60/liter (Apr: RM1.57/liter). Meanwhile, diesel prices eased to RM1.45/liter (Apr: RM1.49/liter).

• Meanwhile, food and non-alcoholic beverage prices rose at the same pace as in April by 1.2% y/y. This is despite the Hari Raya festive season. Traditionally, prices should increase in view of the festive season. However, this time around due to the implementation of the movement control order (MCO) on 18 March 2020, followed by the easing to the conditional movement control order (MCO) effective on 4 May, it has impacted consumer spending.

Source: AmInvest Research - 25 Jun 2020