Headline inflation eased slightly but remained elevated at +3.2% YoY in Dec (Nov: +3.3% YoY), exceeding the consensus estimate of +3.1% YoY. Inflationary pressures mainly stemmed from higher food prices as a result of food supply shortages following adverse weather and floods during the month. Meanwhile, core inflation increased to +1.1% YoY (Dec: +0.9% YoY). In 2021, headline inflation rose +2.5% YoY (2020: -1.2% YoY).

DATA HIGHLIGHTS

Headline inflation eased slightly but remained elevated at +3.2% YoY in Dec (Nov: +3.3% YoY), exceeding the consensus estimate of +3.1% YoY. On a MoM basis, CPI increased (+0.4%; Nov: +0.2%) following higher growth in food & beverages (+1.0%; Nov: +0.6%), restaurants & hotels (+0.4%; Nov: +0.3%) and recreation services & culture (+0.3%; Nov: 0%).

On a YoY basis, CPI was supported by higher food & beverages (+3.2% YoY; Nov: +2.7% YoY) and furnishings, household equipment & maintenance (+2.7% YoY; Nov: +2.6% YoY). Restaurants & hotels (+1.3% YoY; Nov: +0.9% YoY) as well as recreation services & culture (+0.4% YoY; Nov: +0.2% YoY) also increased.

The transport index moderated on a YoY basis (+9.5% YoY; Nov: +12.7% YoY) following lower growth of RON 95 (+17.0% YoY; Nov: +25.3% YoY) and RON 97 (+46.2% YoY; Nov: +58.4% YoY). On a MoM basis, the index also moderated (+0.1%; Nov: +0.3%) as RON 97 fell in line with global Brent oil price, while RON 95 and diesel prices remained constant.

Food inflation accelerated to +3.2% YoY (Nov: +2.7% YoY), with increase in both ‘food at home’ (+4.1% YoY; Nov: +3.6% YoY) and ‘food away from home’ (+2.2% YoY; Nov: +1.7% YoY). Meat prices remained elevated (+8.3% YoY; Nov: +9.3% YoY) owing to high chicken prices amid the increase in animal feed costs and labour shortages. Meanwhile, adverse weather and floods towards the end of Dec has disrupted output and led to higher vegetables (+5.0% YoY; Nov: +3.4% YoY) and fish & seafood prices (+4.2% YoY; Nov: +3.5% YoY), while the spike in fertilizer and pesticide costs also put further pressure on vegetable prices. Other food categories such as milk, cheese & eggs, oils & fats, fruits and rice, bread & other cereals also went up. On the global front, food inflation eased further (+23.1% YoY; Nov: +27.8% YoY) amid moderation across meat, dairy, cereals oils and sugar.

As economic activity gathered pace, services inflation rose (+0.9% YoY; Nov: +0.5% YoY). Restaurants & hotels (+1.3% YoY; Nov: +0.9% YoY), recreation services & culture (+0.4% YoY; Nov: +0.2% YoY) and education (+0.2% YoY; Nov: +0.1% YoY) increased, while communication was still unchanged.

Core inflation (DOSM) also picked up (+1.1% YoY; Nov: +0.9% YoY), driven by furnishings, household equipment & maintenance (+2.7% YoY; Nov: +2.6% YoY), food & non-alcoholic beverages (+2.1% YoY; Nov: +1.6% YoY), transport (+1.9% YoY; Nov: +1.4% YoY) and restaurants & hotels (+1.3% YoY; Nov: +0.9% YoY).

HLIB’s VIEW

We continue to see upside risk to inflation, particularly for food & beverages from flood effects and strong demand with the festive season around the corner. Inflationary pressures may be slightly limited by the extension of maximum price control scheme to 4th Feb, from 31st Dec previously. For now, we maintain our expectation for CPI to moderate to 2.0% YoY as base effect from fuel prices fade.

Source: Hong Leong Investment Bank Research - 24 Jan 2022