Headline inflation was steady at +0.2% YoY in April (Mar: +0.2% YoY) and was below the consensus estimate of +0.4% YoY. The stable inflation was mainly supported by slight uptick in alcoholic beverages & tobacco and smaller decline in transport sector which offset the faster decline in clothing & footwear. We expect inflation to stabilise in the immediate term due to steady petrol prices and increase further in 3Q19 due to GST tax holiday during 3- month period in 2018.

DATA HIGHLIGHTS

Headline inflation was stable at +0.2% YoY in April (Mar: +0.2% YoY), which was below the consensus estimate of +0.4% YoY. Meanwhile, CPI was unchanged on a monthly basis (Apr: 0.0%; Mar: +0.2%).

The stable inflation rate was mainly due to the slight uptick in prices of alcoholic beverages & tobacco (+1.2% YoY; Mar: +1.1% YoY), sustained growth in food & non alcoholic beverages (+1.1% YoY; Mar: +1.1% YoY), housing, utilities & other fuels price (+2.0%; Mar: +2.0% YoY), as well as smaller decline in transport prices (-2.6% YoY; Mar: -3.0% YoY). This offset the faster decline in clothing & footwear prices (- 3.2% YoY; Mar: -3.0% YoY) and moderation in restaurants & hotels prices (+0.8% YoY; Mar: +1.0% YoY).

The transport sub-sector continued to decline, albeit at a slower pace (-2.6% YoY; Mar: -3.0% YoY) as RON95 petrol prices continued to be priced lower at RM2.08 compared to a year ago (Apr 18: RM2.20). On a monthly basis, while RON95 prices were unchanged (RM2.08; Mar: RM2.08), RON97 prices picked up (RM2.69; Mar: RM2.51) as global Brent oil prices continued to rise (RM71.64; Mar: RM67.03) while the ringgit continued to fall (USD/MYR 4.1144; Mar: USD/MYR 4.0789). All in all, this led to a smaller contraction in the sub sector.

Food inflation was sustained at +1.1% YoY (Mar: +1.1% YoY) due to a rebound in vegetable prices (+2.2% YoY; Mar: -2.0% YoY) and higher fish & seafood prices (+0.2% YoY; Mar: +0.1% YoY) which offset the steeper contraction in meat (-3.6% YoY; Mar: -1.1% YoY) and rice, bread & other cereals prices (-0.4% YoY; Mar: -0.2% YoY). However, food inflation continued to decline on a monthly basis (-0.2%; Mar: - 0.5%). On the global front, food prices declined at a slower rate (-2.3% YoY; Mar: - 3.3% YoY) but edged higher on a monthly basis (+1.5%; Mar: +0.3%).

Services inflation was steady at +1.8% YoY (Mar: +1.8% YoY), as the slight moderation in education (+1.2% YoY; Mar: +1.3% YoY) and restaurant & hotels prices (+0.8% YoY; Mar: +1.0% YoY) offset the steady decline in communication (-1.1% YoY; Mar: -1.1% YoY) and recreation services & culture prices (-0.4% YoY; Mar: - 0.4% YoY).

Core inflation (DOSM) was also stable at +0.5% YoY (Mar: +0.5% YoY), mainly supported by steady increase in housing, utilities & fuels (+2.3% YoY; Mar: +2.3% YoY) amid smaller decline in transport prices (-2.7% YoY; Mar: -3.2% YoY).

HLIB’s VIEW

In the near term, we expect inflation to stabilise but remain subdued due to the imposition of petrol price ceiling despite higher global oil prices. In 3Q19, we expect inflation to increase further due to low base effect during GST holiday in Jun-Aug 2018 period. We also maintain our expectation for BNM to maintain OPR at 3.00%, unless conditions in the external environment deteriorate significantly.

Source: Hong Leong Investment Bank Research - 3 Jun 2019