Headline inflation eased, but still remain elevated at +4.4% YoY in May (Apr: +4.7% YoY), slightly lower than consensus estimate of +4.7% YoY. The increase was driven by low base effect which boosted transport, housing, utilities & other fuels and furnishings, household equipment & maintenance index. Meanwhile, core inflation growth inched higher to +0.8% YoY (Apr: +0.7%).

DATA HIGHLIGHTS

Headline inflation eased, but still remain elevated at +4.4% YoY in May (Apr: +4.7% YoY). This came in slightly lower than consensus estimate of +4.7% YoY. On a monthly basis, CPI growth was flat (Apr: +0.2%) as the rise in transport (+0.2%; Apr: +0.1%) was offset by the decline in food & non-alcoholic beverages index (-0.1%; Apr: +0.3%).

The increase in overall index was aided by low base effect which boosted transport (+26.0% YoY; Apr: +27.0% YoY), housing, utilities & other fuels (+3.2% YoY; Apr: +3.1% YoY) and furnishings, household equipment & maintenance (+2.1% YoY; Apr: +1.6% YoY). Higher growth was also seen in other index groups including health (+0.6% YoY; Apr: +0.5% YoY) and education (+0.3% YoY; Apr: +0.2% YoY), while food & non-alcoholic beverages moderated (+1.5% YoY; Apr: +1.9% YoY). Clothing & footwear continued to decline (-0.5% YoY; Apr: -0.4% YoY).

The transport index (+26.0% YoY; Apr: +27.0% YoY) continued to be supported by low retail fuel prices in the prior year. RON95 grew at a softer pace (+58.0% YoY; Apr: +62.7% YoY), capped by the RM2.05/litre ceiling price. RON97 also moderated slightly (+62.6% YoY; Apr: +63.1% YoY). On a MoM basis, the index rose (+0.2%; Apr: +0.1%) following the rebound in passenger transport services by air (+2.0%; Apr: -6.8%).

Food inflation eased to +1.5% YoY (Apr: +1.9% YoY) amid slower growth in both ‘food at home’ (+1.5% YoY; Apr: +2.3% YoY) and ‘food away from home’ (+1.4% YoY; Apr: +1.5% YoY). Fish & seafood (+3.2% YoY; Apr: +3.6% YoY), meat (+1.3% YoY; Apr: +3.9% YoY) and vegetables (+0.4% YoY; Apr: +2.7% YoY) subgroups recorded lower growth following the implementation of festive season price control scheme until 20th

May. On the global front, food inflation surged (+39.7% YoY; Apr: +31.3% YoY) on firmer prices across all subgroups (meat, vegetable oils, sugar, cereals and dairy).

Services inflation edged higher (+0.9% YoY; Apr: +0.8% YoY) as the increase in education (+0.3% YoY; Apr: +0.2% YoY) offset the moderation in recreation services & culture (+0.6% YoY; Apr: +0.7% YoY). Communication services remained flat.

Core inflation (DOSM) picked up (+0.8% YoY; Apr: +0.7% YoY) following the rise in furnishings, household equipment & maintenance (+2.1% YoY; Apr: +1.6% YoY), transport (+0.8% YoY; Apr: +0.6% YoY), housing, utilities & other fuels (+0.6% YoY; Apr: +0.4% YoY), health (+0.6% YoY; Apr: +0.5% YoY) and education (+0.3% YoY; Apr: +0.2% YoY).

HLIB’s VIEW

In line with global food inflation, food inflation risk could still persist on the domestic front once the festive season price control scheme is lifted beyond 20 May. In addition, placement of several localities in Cameron Highlands under EMCO from 14-27 June could see some increase in vegetable prices in the near future. Despite the FMCO being implemented in response to Covid-19 pandemic in Malaysia, we maintain our expectation for BNM to retain the OPR at 1.75% in 2021.

Source: Hong Leong Investment Bank Research - 28 Jun 2021