Headline inflation was higher at +3.3% YoY in Nov (Oct: +2.9% YoY), slightly exceeding the consensus estimate of +3.2% YoY. Inflation was mainly driven by higher food prices and transport prices Meanwhile, core inflation rate picked up to +0.9% YoY (Oct: +0.7% YoY).

DATA HIGHLIGHTS

Headline inflation was higher at +3.3% YoY in Nov (Oct: +2.9% YoY), slightly exceeding the consensus estimate of +3.2% YoY. On a MoM basis, CPI increased (+0.2%; Oct: +0.7%) on the back of higher food & beverages (+0.6%; Oct: +0.2%), transport index (+0.3%; Oct: +0.2%).

On a YoY basis, CPI was mainly driven by transport (+12.7% YoY; Oct: 11.3% YoY) and housing, utilities & other fuels index (+3.4% YoY; Oct: +3.2% YoY). Food & beverages (+2.7% YoY; Oct: +1.9% YoY) as well as furnishings, household equipment & maintenance (+2.6% YoY; Oct: +2.1% YoY) and) also increased.

The transport index grew at a faster pace on a YoY (+12.7% YoY; Oct: +11.3% YoY) and MoM basis (+0.3%; Oct: +0.2%). The annual increase was supported by lower retail fuel prices in the previous year and the sharp rise in global Brent oil price this year. RON 95 was +25.3% YoY higher (Oct: +22.4% YoY), while RON 97 was up +58.0% YoY (Oct: +44.2% YoY). On a monthly basis, transport prices rose following increase in RON97 petrol prices while RON95 and diesel prices remain constant.

Food inflation accelerated to +2.7% YoY (Oct: +1.9% YoY). Both ‘food at home’ (+3.6% YoY; Oct: +2.7% YoY) and ‘food away from home’ (+1.7% YoY; Oct: +1.1% YoY) ticked up. In terms of food categories, increase in prices were seen across the board. Meat prices spiked further (+9.3% YoY; Oct: +6.8% YoY) following higher prices of feed for animals mainly from imported sources. Milk, cheese & eggs (+4.2% YoY; Oct: +4.0% YoY) and oils & fats (+4.2% YoY; Oct: +3.7% YoY) also observed higher prices. Similarly, fruits prices turned around to register growth of +0.8% YoY (Oct: -0.3% YoY) while vegetable prices accelerated (+3.4% YoY; Oct: +0.6% YoY) due to weather uncertainties, fertiliser costs and increase in demand. Meanwhile, on the global front, food inflation continued to ease (+27.3% YoY; Oct: +31.3% YoY) on slower growth in meat, oils and sugar. However, diary prices rose +19.1% YoY (Oct: +16.2% YoY), owing partly to tight global export availabilities and depleted stocks amid strong demand in anticipation of tight markets and Covid-19 related uncertainty.

Services inflation was slightly higher at +0.5% YoY (Oct: +0.4% YoY) supported by the rise in restaurants & hotels (+0.9% YoY; Oct: +0.6% YoY) and education (+0.1%; Oct: -0.1% YoY) as the economy continued to reopen. Communication remained flat.

Core inflation (DOSM) picked up (+0.9% YoY; Oct: +0.7% YoY), driven by furnishings, household equipment & maintenance (+2.6% YoY; Oct: +2.1% YoY), food & non alcoholic beverages (+1.6% YoY; Oct: +1.2% YoY), transport (+1.4% YoY; Oct: +1.1% YoY) and restaurants & hotels (+0.9% YoY; Oct: +0.6% YoY).

HLIB’s VIEW

While we maintain our 2022 CPI forecast at 2.0% YoY, we see upside risk in inflationary pressures. In the near-term, food prices could rise further due to increase in import prices, continued labour shortages, severe flooding which could dampen production and hamper transportation services in Malaysia in the face of strong seasonal demand. Nevertheless, as BNM is not an inflation targeting central bank, we maintain our expectation for BNM to increase OPR by 25bps in 4Q22.

Source: Hong Leong Investment Bank Research - 23 Dec 2021