- Malaysia’s Consumer Price Index (CPI) grew by 2.1% YoY in May (April: +1.8%), driven by both the non-food and food segments of CPI.

- Core inflation advanced by 1.4% YoY, compared to 1.2% YoY in April. However, the price increase for food and nonalcoholic beverages was 3.5% in April (April: +3.1%).

- Meanwhile, transport cost remained relatively low in May as petrol pump prices remained the same since March. Transport index had registered a contraction of 4.7% YoY (April: -4.8%).

- In May, RON 95 petrol remained at RM1.95 a litre, RON 97 petrol at RM2.25 a litre, and diesel at RM1.95 a litre – unchanged from the previous month.

- On a YTD basis, inflation had registered a growth of 1.2% vs. 3.4% during the corresponding period last year.

- As for June, prices are expected to pick up pace, mostly driven by the increase in petrol pump prices. Inflation rate is likely to advance by 2.3% in June.

- Note that the RON 95 petrol is priced at RM2.05 a litre in June (+10 sen MoM), RON 97 petrol at RM2.35 (+10 sen), and diesel at RM2.05 (+10 sen).

- For the remaining of 2015, we envisage underlying inflation to be fairly stable on the back of subdued demand conditions and moderate cost pressure.

- As for now, we retain our inflation projection of 2.9% for 2015 (vs. 3.2% in 2014), pending further updates ahead.

- That said, BNM is likely to maintain an accommodative monetary policy and the key rate will probably be retained for the rest of 2015.

- Our year-end target for the OPR is 3.25%, which is unchanged compared to that for year-end 2014. The upcoming Monetary Policy Committee (MPC) meeting is on 9 July.

- Malaysia has been registering positive real interest rate since September 2014. Nevertheless, real interest rate had reduced to +1.15% in May as inflation trended higher (from a high of +3.15% in February).

Source: AmeSecurities Research - 22 Jun 2015