Headline inflation increased by +0.1% YoY in Feb (Jan: -0.2% YoY), slightly below the consensus estimate of +0.2% YoY. The overall index was supported by food & non-alcoholic beverages and miscellaneous goods & services, as well as smaller decline in transport index. Meanwhile, core inflation growth remained steady at +0.7% YoY (Jan: +0.7% YoY).

DATA HIGHLIGHTS

Headline inflation turned positive in Feb (+0.1% YoY; Jan: -0.2% YoY), slightly below the consensus estimate of +0.2% YoY. This was the first positive reading after 11 months of negative inflation. On a monthly basis, CPI eased to +0.3% (Jan: +1.2%) due to slowdown in housing, utilities & fuels (+0.2%; Jan: +2.6%) and transport (+2.3%; Jan: +3.7%).

The overall index was supported by food & non-alcoholic beverages (+1.4% YoY; Jan: +1.5% YoY) and miscellaneous goods & services (+1.6% YoY; Jan: +1.8% YoY), albeit at a slower pace, as well as smaller decline in transport (-2.0% YoY; Jan: -5.1% YoY). Meanwhile, housing, utilities & other fuels (-0.8% YoY; Jan: -0.7% YoY) and restaurants & hotels (-0.3% YoY; Jan: -0.1% YoY) registered a steeper decline.

The transport index continued to decline at a slower pace (-2.0% YoY; Jan: -5.1% YoY), owing to smaller YoY decrease in RON 95 (-5.7% YoY; Jan: -10.2% YoY) and RON 97 (-5.3% YoY; Jan: -15.7% YoY) petrol prices. On a monthly basis, the transport index continued to rise, albeit at a softer pace (+2.3%; Jan: +3.7%), in tandem with rising global Brent oil prices which averaged USD62.28 during the month (Jan: USD55.15).

Food inflation eased slightly (+1.4% YoY; Jan: +1.5% YoY) following moderation in ‘food at home’ (+1.4% YoY; Jan: +1.5% YoY) and ‘food away from home’ (+1.4% YoY; Jan: +1.6% YoY). While other food subgroups recorded higher growth, meat prices declined (-0.2% YoY; Jan: +2.1% YoY), while vegetables (+2.4% YoY; Jan: +4.4% YoY) and rice prices (+0.4% YoY; Jan: +0.6% YoY) moderated. On the global front, food inflation continued to rise (+16.7% YoY; Jan: +10.5% YoY), largely due to the surge in vegetable oil prices (+51.0% YoY; Jan: +27.7% YoY) following supply disruptions. Cereals, dairy and sugar prices also contributed to the rise, while meat prices continued to decline.

Services inflation sustained at +0.8% YoY (Jan: +0.8% YoY) as stable growth in recreation services & culture (+0.1% YoY; Jan: +0.1% YoY) offset the decline in restaurants & hotels (-0.3% YoY; Jan: -0.1% YoY) and slower growth in education (+0.1% YoY; Jan: +0.2% YoY). Meanwhile, communication remained unchanged.

Core inflation (DOSM) steadied at +0.7% YoY (Jan: +0.7% YoY), supported by the increase in transport (+0.5% YoY; Jan: -0.6% YoY) and furnishings, household equipment & maintenance (+0.3% YoY; Jan: +0.2% YoY), which offset the decline in restaurants & hotels (-0.3% YoY; Jan: -0.1% YoY).

HLIB’s VIEW

Headline inflation is expected to spike in 2Q 2021 onwards, due to low base effect following the negative inflation print last year from low Brent oil price. Nevertheless, volatile inflationary pressures should be capped by the lower ceiling prices for fuel. The government stated that it is currently subsidising almost 30 sen per litre for RON 95 and diesel, which have now hit their respective ceiling prices of RM2.05/litre and RM2.15/litre.

Source: Hong Leong Investment Bank Research - 25 Mar 2021