News

• Headline inf lation moderated to +4.4% yoy in April (Mar: +5.1% yoy), slightly lower than consensus estimate of +4.5% yoy.

• The moderation was a result of slower growth in the transportation sub-sector as the base eff ect started to wane.

• On mom basis, CPI declined by -0.3% in April, registering its second consecutive contraction (Mar: -0.3%). Core inf lation maintained its steady pace in April (+2.5% yoy).

Comments

• The moderation in inf lation reading was on account of slower increase in prices of transportation sub-sector.

• Inf lation in the transport category moderated to +16.7% yoy af ter recording a high of +23.0% in March as low base effect started to wane. During the month, retail petrol prices also moderated as ref ineries resumed operations af ter experiencing a shutdown earlier in the year. In April 2017, the average price of RON95 and RON97 was lower at RM2.20 and RM2. 48 30 respectively compared to the previous month (RON95: RM2.30; RON97: RM2.60). Despite the lower retail petrol prices, transportation sub sector still contributed a substantial boost of +2.1ppts to overall inf lation.

• Food prices rose at the same pace of +4.1% yoy. The faster increase in meat (+4.2% yoy; Mar: +3.7% yoy), fish & seaf ood inf lation (+6.2% yoy; Mar: +5.2% yoy) were offset by moderation in f ruits (+2.4% yoy; Feb” +3.7% yoy) and vegetable price increase (+2.3% yoy; Feb: +4.8% yoy).

• Services inflation inched higher to +2.9% yoy (Mar: +2.8 yoy), as prices in health sub-sector accelerated by +2.8% yoy (Mar: +2.6% yoy) while that of education remained steady at +1.7% yoy. Restaurant and hotels sub-segment also held constant at +3.0% yoy.

• Core inf lation (DOSM) remained moderate at +2.5% yoy (Mar: +2.5%), as the increase in health prices (+2.8% yoy; Mar: +2.6% yoy) and f ood & beverage (+4.1% yoy; Mar: +3.7% yoy) were offset by decline in clothing and f ootwear (-0.1% yoy; Mar: -0.2% yoy) and communication (-0.3% yoy; Mar: -0.2% yoy).

• The moderation in inf lation was within expectations as the impact of low base effect dissipates. Going f orward, we expect inf lation to moderate f urther as the impact of base effect continues to ebb off. At the same time, we expect demand-driven inf lation to be contained. Meanwhile, the new Price Control And Anti-Prof iteering Act 2016 will also limit the upside of CPI increase.

• We maintain our f ull year CPI growth f orecast at 3.4% yoy. Our f orecast has factored in higher f uel prices (RON95 assumption: RM2.20/l in 2017; average 2016: RM1.75/l) and sustained f ood inf lation arising f rom removal of cooking oil subsidy in November 2016 and weaker ringgit.

• We maintain our f orecast f or BNM to stand pat in 2017.

Source: Hong Leong Investment Bank Research - 18 May 2017