The Consumer Price Index for January 2022 rose 2.3% y/y, while core inflation increased 1.6% y/y. Upward pressure on inflation is expected to stay modest as supply issue-related matters are dissipating and the economy is getting close to a full reopening. We are expecting headline inflation to be 2.4%–2.6% for 2022.

Inflation starts 2022 on tepid note

Highlights

• The Consumer Price Index for January 2022 increased by 2.3% y/y, which is slower relative to the previous month’s inflation number of 3.2% y/y, and last year’s average of 2.5%.

• Prices for food and non-alcoholic beverages rose 3.6% y/y, higher relative to the previous month’s 3.2% y/y. Transportation prices increased by 6.5% y/y due to a higher prices for fuels & lubricating equipment, and repair and maintenance. Prices for furnishings, household equipment & maintenance climbed by 3.1% y/y, due to higher prices of furniture & furnishings.

• Core inflation, which does not measure volatile items of fresh food and administered prices, edged up to 1.6%, which is relatively higher compared to the 2021 average of 0.7% y/y.

Key takeaways

• Upward pressure on inflation is expected to stay modest. Supply issue-related matters are dissipating as the economy is getting closer to a full reopening. Also, the dissipating low base and the ceiling petrol prices for both RON95 and diesel should keep price pressure contained.

• Considering that the ceiling prices of RM2.05 per litre for RON95 and RM2.15 per litre for diesel were imposed around the end of February 2021, we deduced that transportation group prices will be subdued for the upcoming months

. • However, we expect that transfer pricing will take place due to higher input prices induced by higher commodities and materials prices. The higher core inflation reading is also suggesting that there could be a demand-pull factor that is causing prices to be more elevated and widespread.

• With the presence of Eastern Europe tensions, there is possibility of commoditites prices surging and further disruptions in global supply chain network.

• For 2022, we are expecting headline inflation to be between 2.4% and 2.6%. From the monetary policy’s perspective, we are expecting a 1–2 OPR rate hikes this year, which translate to 2.00% to 2.25% OPR by the end of this year.

Source: AmInvest Research - 25 Feb 2022