• Inflation eased further to +2.2% yoy; 0.2% mom in February

• Food inflation remained at 4-year high; Transport inflation eased

• Core inflation rose by +1.8% yoy

• Global inflation is heating up

• Escalating inflation risks

Malaysia’s CPI increased slower by 2.2% yoy in February compared to 2.3% yoy in January. This was the thirteenth straight month of inflation since February 2021 and the slowest in 5 months. The inflation was attributable to the higher crude oil prices, foods inflation, and better domestic demand. The slower CPI was chiefly credited to a sharp deceleration in transport costs mainly due to the base effect as well as price cap on food items. On a monthly basis, consumer prices rose by 0.2% compared to January’s 0.3% gains. Year-to-date, headline inflation averaged +2.3% in the first two months of 2022 (Jan-Feb 2021: -0.1%).

The increased in the non-food price index was slower at 1.5% yoy (Jan: +1.7%), while the food price index grew higher by 3.7% yoy (Jan: +3.6%). CPI without fuel, which covers all goods and services except RON95, RON97 and Diesel, went up by 1.9% in February (Jan: +1.7%). Meanwhile, durable goods price increased faster by 2.4% in February (Jan: +1.8%), while non-durable goods rose by 3.6% yoy (Jan: +4.3%). The prices of semi-durable goods grew at a constant pace in February (Feb: +0.1%; Jan: +0.1%).

Food inflation remained at a 4-year high of +3.7%. The index for Food & Non-Alcoholic Beverages (FNAB), which contributes 29.5% of CPI weight, rose the most since January 2018 (3.8%) by +3.7% yoy in February 2022 (Jan: +3.6%) due to higher meat prices. In February, raw cooking materials such as chicken and eggs increased by 14.2% and 13.5%, respectively. The prices rose included meat (Feb: +9.0%; Jan: +7.8%), milk, cheese & egg (Feb: +5.1%; Jan: +4.7%), vegetables (Feb: +4.3%; Jan: +5.0%), oil & fats (Feb: +4.1%; Jan: +4.6%), and fish & seafood (Feb: +3.6%; Jan: +4.2%). Among the food items which recorded year-on-year price increases were related to the preparation of food at home such as capsicum (19.6%), bitter gourd (12.8%), ladyfinger (12.6%), long beans (11.0%), and selayang (9.6%). Price inflation of food at home remained unchanged at 52-month high by 4.1% (Jan: +4.1%) while that of food away from home accelerated to 3.6% (Jan: +3.1%), the highest level since Sep 2019.

Transport price inflation eased due to fading base effects. Transport price inflation eased to 3.9% in February (Jan: +6.0%) due to the diminishing low-base effect. The moderation was attributed by the operation of personal transport equipment (Feb: +6.3%; Jan: +9.1%) and larger contraction in transport services (Feb: -19.1%; Jan: -18.9%). In addition, fuel inflation receded to a single-digit pace, the slowest in 12-month at 7.1% (Jan: +11.6%). This came as the government’s fuel subsidies helped to contain the effects of elevated global oil prices on transport costs. The ceiling price of the RON95 Unleaded Petrol in February 2022 (RM2.05) was still high as compared to the average price of RM1.96 per litre in February 2021 (Mar’21: RM2.05). In addition, the average price of Unleaded Petrol RON97 rose to RM3.21 per litre as compared to RM2.26, while the average price of Diesel increased to RM2.15 as compared to RM2.13 in February 2021.

Core inflation stayed on the upward path. Core inflation - which excludes most volatile items of fresh food as well as administered prices of goods and services – rose to a 30-month high of +1.8% yoy (Jan: +1.6%). Services inflation increased by 1.5% yoy in February compared to the previous month (Jan: +1.2%). The continuous rise in core CPI indicates the improvement of domestic demand aided by the reopened of the economy and gradual recovery in the labour market. These implied that further growth in domestic demand should continue with the return of economic and social activities to almost normal in the post reopened of the economy and later in the endemic phase.

Source: BIMB Securities Research - 28 Mar 2022