• Inflation increased 1.5% yoy

• Core inflation grew by 1.9%

• Relatively benign global inflation backdrop

• Inflation trajectory remains heavily subject to the fuel price regime

Malaysia's inflation rate increased to 1.5% yoy in June from 0.2% in the previous month, the fourth straight month rise in prices and marking the highest inflation since May last year. Main upward pressure came from both food and housing & utilities prices while transport prices dropped less than in a month earlier. On a monthly basis, consumer prices were flat in June, following a 0.2% rise in May.

Food & non-alcoholic beverages (FNAB), which account for 29.5% of the CPI weights, increased by 2.3% in June, the most since April last year, up from a 1.2% rise in May. The increase was attributed by the food sub-group index of vegetables (+5.2%), milk & eggs (+2.5%) and fruits (+1.1%). By grouping, consumer prices for food at home increased by 0.9% yoy (May: 0.2%) while that of food away from home rose 4.2% yoy (May: 2.9%).

The CPI for the period of January-June increased by 0.2% as compared to the same period of the preceding year. The CPI for 2Q19 increased by 0.7% as compared to the same quarter of the previous year whilst on quarterly basis the CPI in 2Q19 increased 0.4% as compared to 1Q19.

Fuel related items remained in deflation. Transport prices continued to drop, but at a softer pace of -2.1% yoy in June (May: -2.5%; Apr: -2.6%; Mar: -3.0%; Feb: -6.8%; Jan: -7.8%), registering eight-consecutive months of negative growth. Within the transport sub-indices, fuels & lubricating for personal transport equipment which accounted for 8.5% of total CPI declined 5.0% in (May: -4.1%; Apr: -4.2%; Mar: -4.8%) as prices of RON95 has been fixed at RM2.08 since March 2019 presumably until the implementation of targeted fuel subsidies.

Higher core inflation. Core CPI – which excludes the most volatile items of fresh foods as well as administered prices of goods and services – increased 1.9% yoy in June from 0.4% yoy in May. Among the major groups which influenced the higher core rate were price increases of furnishings, household equipment & routine household maintenance (+3.1%), food & nonalcoholic beverages (+2.3%), recreation services & culture (+2.7%) and communication (+2.1%).

Source: BIMB Securities Research - 24 Jul 2019