HLBank Research Highlights

Economics - June Inflation Report

HLInvest
Publish date: Thu, 16 Jul 2015, 10:49 AM
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News 

  • Headline inflation hit 6-month high of 2.5% yoy in June (+2.1% yoy), matching our expectation but a tad higher than consensus’s estimate of a 2.4% gain.
  • On mom basis, CPI grew by 0.6% (May: +0.4%). Stripping out the impact of fuel price hike, mom CPI growth is halved to 0.2%, suggesting that GST effects have faded further. The annual growth of CPI averaged at 1.4% in 1H15, coming off from the +2.9% in 2H14 and +3.4% in 1H14. 

Comments

  • The higher June CPI growth was attributed to costlier fuel, food, furniture and household services amid diminishing effects of GST spillover.
  • The decline in transport price moderated sharply to 1.4% yoy (May: -4.7% yoy) after the 10 sen hike across all fuel prices. We expect the deflation trend would end and return to positive growth in July following the third price increase for RON95 (+10sen) and RON97 petrol (+20sen) on 1 July.
  • Price inflation of food items remained high at 3.4% yoy (May: +3.5% yoy), primarily due to pricier fruits (+3.0%; May: +2.7%) and vegetables (+5.4%; May: +5.3%). Despite the enforcement of Aidilfitri price control scheme from 7 untill 23 July, we expect food prices to stay elevated driven mainly by high demand during festive celebration in July.
  • CPI growth in furnishing and household maintenance escalated to 3.2% yoy (May: +2.6% yoy), largely attributed to higher prices of furniture (+3.8%; May: +3.6%) and household services (+4.1%; May: +1.5%).
  • Price inflation of alcoholic beverages and tobacco held steady at 11.3% yoy. The impact of 30 sen hike in cigarettes on 29 June would only be reflected in July. 
  • Core inflation still stayed below the threshold level of 2.5% in June (+2.4% yoy; May: +2.0% yoy), suggesting that underlying inflation risk is kept largely in check.
  • Service inflation, which experienced the greatest impact of GST imposition, continued to climb up to 3.8% yoy (May: +3.7% yoy). The expansion was chiefly driven by education segment (+2.6%; May: +2.5%) and recreation services & culture (+1.7%; May: +1.6%). Meanwhile, price inflation of communications, restaurants & hotels and healthcare remained stable at 2.6%, 4.5% and 5.0% respectively.
  • We maintain our 2015 full-year inflation target at 2.5%. The fast fading of GST spillover effects is expected to be offset by higher retail fuel prices as a result of weak MYR and mild recovery in global energy prices. Our inflation forecast had factored in an average RON95 price of RM2.00/litre based on Brent oil price forecast of US$60/bbl for this year. 
  • Given the absence of underlying inflation risks, abated risk of financial imbalances and modest domestic growth outlook amid prevailing downside risks (i.e. China’s slowdown and US Fed rate liftoff), we maintain our end- 2015 OPR target at 3.25%.

Source: Hong Leong Investment Bank Research - 16 Jul 2015

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