Headline inflation declined at a slower pace in Jan (-0.2% YoY; Dec: -1.4% YoY), higher than the consensus estimate of -0.8% YoY. The decrease in transport, housing, utilities & fuels, clothing & footwear and restaurants & hotels continued to weigh down on the overall index. Meanwhile, core inflation growth steadied at +0.7% YoY (Dec: +0.7% YoY).

DATA HIGHLIGHTS

Negative CPI extended into Jan, albeit by a smaller rate (-0.2% YoY; Dec: -1.4% YoY), higher than the consensus estimate of -0.8% YoY. Meanwhile, on a monthly basis, CPI continued to pick up (+1.2%; Dec: +0.5%), mainly driven by increase in transport (+3.7%; Dec: +3.0%), housing, utilities & fuels (+2.6%; Dec: 0.0%) and furnishings, household equipment & maintenance (+0.3%; Dec: +0.1%).

The decline in CPI was attributed to smaller decrease in transport (-5.1% YoY; Dec: - 8.4% YoY), housing, utilities & fuels (-0.7% YoY; Dec: -3.3% YoY) and restaurants and hotels (-0.1% YoY; Dec: -0.2% YoY), while clothing & footwear declined at a sustained pace (-0.4% YoY; Dec: -0.4% YoY). These groups contributed 44.5% to the overall index. Meanwhile, food & non-alcoholic beverages rose +1.5% YoY (Dec: +1.4% YoY). Furnishings, household equipment & maintenance rebounded by +0.2% YoY (Dec: -0.1% YoY).

The transport index posted a slower decline of -5.1% YoY (Dec: -8.4% YoY) as RON95 (-10.2% YoY; Dec: -15.7% YoY) and RON97 (-15.7% YoY; Dec: -21.7% YoY) recorded smaller YoY drop in prices. The rise in global Brent oil price (USD55.15; Dec: USD50.26) also led to an increase in the index on a monthly basis (+3.7%; Dec: +3.0%). Housing, utilities & fuels also recorded a monthly increase (+2.6%; Dec: 0%) due to lapse of electricity discount for household sector.

Food inflation rose (+1.5% YoY; Dec: +1.4% YoY), driven by ‘food at home’ (+1.5% YoY; Dec: +1.3% YoY) amid steady growth in ‘food away from home’ (+1.6% YoY; Dec: +1.6% YoY). Most food categories recorded moderation in growth, with the exception of vegetables (+4.4% YoY; Dec: +3.6% YoY) and milk & eggs (+1.8% YoY; Dec: -0.3% YoY). On the global front, food inflation rose to 10.6% YoY (Dec: 7.5% YoY), propped up by vegetable oil, cereal, sugar and dairy prices due to supply disruptions and strong demand.

Services inflation moderated slightly (+0.8% YoY; Dec: +0.9% YoY) following the decline in restaurants & hotels (-0.1% YoY; Dec: -0.2% YoY) and slower growth in education (+0.2% YoY; Dec: +0.6% YoY) and recreation services & culture (+0.1% YoY; Dec: +0.2% YoY). Meanwhile, communication index remained flat.

Core inflation (DOSM) steadied at +0.7% YoY (Dec: +0.7% YoY), mainly supported by food & non-alcoholic beverages (+1.2% YoY; Dec: +1.2% YoY), and housing, utilities & fuels (+0.5% YoY; Dec: +0.6% YoY).

HLIB’s VIEW

Headline inflation is expected to turn positive in Mar 2021 onwards, driven by low base effect following the negative print that began in Mar 2020 due to low Brent oil price. While rising domestic fuel prices are also anticipated to lift inflation growth, the government’s decision to lower the ceiling price for RON95 petrol by 3 sen to RM2.05/litre may cap volatile inflationary pressures. Despite the lower ceiling petrol price, we maintain our CPI forecast at 2.5% YoY due to upside risk from global food inflation.

Source: Hong Leong Investment Bank Research - 25 Feb 2021