Headline inflation accelerated to +1.7% YoY in Mar (Feb: +0.1% YoY), surpassing the consensus estimate of +1.6% YoY. The increase was mainly contributed by transport and food & non-alcoholic beverages index. Meanwhile, core inflation growth sustained at +0.7% YoY (Feb: +0.7% YoY).

DATA HIGHLIGHTS

As expected, headline inflation accelerated in Mar (+1.7% YoY; Feb: +0.1% YoY) following the negative print in the same month last year. This surpassed the consensus estimate of +1.6% YoY. On a monthly basis, CPI growth maintained at +0.3% (Feb: +0.3%), supported by steady growth in transport index (+2.3%; Feb: +2.3%).

The increase in overall index was driven by sharp rebound in transport (+9.8% YoY; Feb: -2.0% YoY) and rise in food & non-alcoholic beverages (+1.5% YoY; Feb: +1.4% YoY), furnishings, household equipment & maintenance (+0.9% YoY; Feb: +0.3% YoY) and restaurants & hotels index (+0.5% YoY; Feb: +0.1% YoY). Meanwhile, housing, utilities & other fuels continued to decline by -0.8% YoY (Feb: -0.8% YoY).

The surge in transport index (+9.8% YoY; Feb: -2.0% YoY) was largely due to low base effect from low domestic fuel prices experienced in Mar 2020. Price per litre of RON 95 was higher at RM2.05 in Mar 2021 (Mar 2020: RM1.74), while RON 97 was at RM2.41 (Mar 2020: RM2.04). On a monthly basis, the transport index rose at a steady pace (+2.3%; Feb: +2.3%), in tandem with rising global Brent oil prices which averaged USD65.70 during the month (Feb: USD62.28).

Food inflation picked up (+1.5% YoY; Feb: +1.4% YoY) as ‘food at home’ increased (+1.6% YoY; Feb: +1.4% YoY) while ‘food away from home’ steadied (+1.4% YoY; Feb: +1.4% YoY). Most food subgroups recorded larger increase in prices, with the exception of milk, cheese & eggs (+0.9% YoY; Feb: +2.5% YoY) and oils & fats (+1.7% YoY; Feb: +2.0% YoY). In line with this, global food inflation saw a marked increase in Mar (+24.6% YoY; Feb: +16.8% YoY), the highest since June 2014. This was driven by higher prices of vegetable oils, sugar, cereals and dairy, while meat prices declined at a slower pace.

Services inflation eased to +0.7% YoY (Feb: +0.8% YoY) as the rise in recreation services & culture (+0.5% YoY; Feb: +0.1% YoY) was offset by flat growth in communication (0.0% YoY; Feb: 0.0% YoY), education (0.0% YoY; Feb: +0.1% YoY) and restaurants & hotels (0.0% YoY; Feb: -0.3% YoY).

Core inflation (DOSM) sustained at +0.7% YoY (Feb: +0.7% YoY), supported by the increase in furnishings, household equipment & maintenance (+0.9% YoY; Feb: +0.3% YoY), transport (+0.6% YoY; Feb: +0.5% YoY) and recreation services & culture (+0.5% YoY; Feb: +0.1% YoY), which offset the continued decline in clothing & footwear (-0.3% YoY; Feb: -0.4% YoY).

HLIB’s VIEW

Headline inflation is expected to surge further in 2Q21 due to low base effect from low Brent oil prices last year. In addition to this, there is upside risk from rising food inflation globally and locally. To curb the rising prices of essential food items, the government has put 12 items under chicken, eggs, beef and seafood categories under price control for a 30-day period from 21st Apr to 20th May, longer than the usual 14-day period during festive seasons in previous years. Maintain CPI forecast at 2.5% YoY.

Source: Hong Leong Investment Bank Research - 26 Apr 2021