Headline inflation rebounded at a modest pace of +0.2% YoY in March (Feb: - 0.4% YoY), but below the consensus estimate of +0.3% YoY. The rebound was driven by higher prices for food & non-alcoholic beverages, sustained increases in housing, utilities & other fuels, and slower decline in transportation sector. In 1Q19, CPI contracted by -0.3% YoY (4Q18: +0.2% YoY). In the next quarter, inflation is expected to stabilise following steady petrol prices and low base effect due to GST tax holiday during 3-month period in 2018.

DATA HIGHLIGHTS

Headline inflation recorded a modest rebound of +0.2% YoY in March (Feb: -0.4% YoY), which was lower than the consensus estimate of +0.3% YoY. On a monthly basis, CPI was steady at +0.2% (Feb: +0.2%). In 1Q19, CPI contracted by -0.3% YoY (4Q18: +0.2% YoY).

The recovery in price levels was driven by a slight uptick in food & non-alcoholic beverages price (+1.1% YoY; Feb: +1.0% YoY) and sustained rise in housing, utilities & other fuels (+2.0% YoY; Feb: +2.0% YoY), education (+1.3% YoY; Feb: +1.3% YoY) and alcoholic beverages & tobacco prices (+1.1% YoY; Feb: +1.1% YoY). Despite the continued declines in transport (-3.0% YoY; Feb: -6.8% YoY), clothing & footwear (-3.0% YoY; Feb: -3.2% YoY) and communication prices (-1.1% YoY; Feb: - 1.2% YoY), the pace of contraction was at a slower pace.

On an annual basis, the transport sub-sector declined due to lower average RON95 petrol prices during the month (Mar 19: RM2.08; Mar 18: RM2.20). However, petrol prices rose on a monthly basis (RON95: RM2.08, Feb: RM1.99; RON97: RM2.51, Feb: RM2.29) following a further pickup in global Brent oil prices (USD67.03; Feb: USD64.43) alongside depreciation of ringgit (USD/MYR 4.0789; Feb: USD/MYR 4.0776). Overall, this led to a smaller contraction (-3.0% YoY; Feb: -6.8% YoY).

Food inflation rose +1.1% YoY in March (Feb: +1.0% YoY), driven by rise in milk & eggs prices (+2.0% YoY; Feb: +1.8% YoY), offsetting the declines in meat (-1.1% YoY; Feb: +2.1% YoY) and vegetables prices (-2.0% YoY; Feb: -6.3% YoY). However, global food prices continued to decline (-3.6% YoY; Feb: -2.3% YoY) on an annual basis and moderated to +0.1% (Feb: +1.8%) on a monthly basis.

Services inflation was sustained at +1.8% YoY (Feb: +1.8% YoY), supported by steady growth in education price levels (+1.3% YoY; Feb: +1.3% YoY) which offset the moderation in restaurant & hotels (+1.0% YoY; Feb: +1.3% YoY), declines in communication (-1.1% YoY; Feb: -1.2% YoY) and recreation services & culture prices (-0.4% YoY; Feb: -0.4% YoY).

Core inflation (DOSM) ticked higher at +0.5% YoY (Feb: +0.3% YoY), mainly driven by higher furnishings, household equipment & routine household maintenance prices (+0.3% YoY; Feb: +0.1% YoY) amid steady rise in housing, utilities & fuels (+2.3% YoY; Feb: +2.3% YoY) and education (+1.3% YoY; Feb: +1.3% YoY).

HLIB’s VIEW

Going forward, we expect inflation to stabilise due to steady petrol prices amid lower base effect. Nevertheless, the overall effect will likely be subdued due to the imposition of petrol price ceiling in despite higher global oil prices. We anticipate inflation to peak in 3Q19 due to GST holiday in Jun-Aug 2018 period (low base).

Source: Hong Leong Investment Bank Research - 25 Apr 2019