Headline inflation eased to +2.2% YoY in Feb (Jan: +2.3% YoY), lower than consensus estimate of +2.4% YoY. The rise in food & beverages, the main contributor to inflation, was partly offset by slower growth in transport index. Meanwhile, core inflation rose further to +1.8% YoY (Jan: +1.6% YoY).

DATA HIGHLIGHTS

Headline inflation eased to +2.2% YoY in Feb (Jan: +2.3% YoY), lower than consensus estimate of +2.4% YoY. On a MoM basis, CPI softened to +0.2% (Jan: +0.3%) following moderation in food & beverage (+0.1%; Jan: +0.6%) and transport (+0.2%; Jan: +0.4%) which offset the rise in housing, utilities & fuels (+0.3%; Jan: 0.0%).

On a YoY basis, inflation was buoyed by higher food & non-alcoholic beverages (+3.7% YoY; Jan: +3.6% YoY), furnishings, household equipment & maintenance (+3.2% YoY; Jan: +3.1% YoY) and housing, utilities & fuels (+0.8% YoY; Jan: +0.7% YoY), but was offset by slower growth in transport index (+3.9% YoY; Jan: +6.0% YoY).

The transport index slowed (+3.9% YoY; Jan: +6.0% YoY) on the back of moderate growth of RON 95 (+5.3% YoY; Jan: +9.8% YoY) and diesel (+1.4% YoY; Jan: +5.3% YoY), as higher global oil price from rising geopolitical tensions during the month were limited by the domestic petrol price ceiling. On a MoM basis, the index eased (+0.2%; Jan: +0.4%), dragged by decline in transport services (-2.9%; Jan: -3.9%).

Food inflation increased to +3.7% YoY (Jan: +3.6% YoY) amid the rise in ‘food away from home’ (+3.6% YoY; Jan: +3.1% YoY) and steady growth in ‘food at home’ (+4.1% YoY; Jan: +4.1% YoY). Rising animal feed prices and supply issues have put upward pressure on food items like meat (+9.0% YoY; Jan: +7.8% YoY). Milk, cheese & eggs (+5.1% YoY; Jan: +4.7% YoY) and rice, bread & other cereals (+2.1% YoY; Jan: +1.9% YoY) also saw increases, while vegetables (+4.3% YoY; Jan: +5.0% YoY) and fish & seafood (+3.6% YoY; Jan: +4.2% YoY) recorded more modest growth. On the global front, food inflation has also picked up (+20.7% YoY; Jan: +19.3% YoY), mostly driven by dairy, cereals and oils.

Services inflation rose +1.5% YoY (Jan: +1.2% YoY), driven by restaurants & hotels (+2.6% YoY; Jan: +2.1% YoY), possibly due to second-round effects from higher food inflation. Recreation services & culture also picked up (+1.6% YoY; Jan: +1.2% YoY), while education (+0.7% YoY; Jan: +0.2% YoY) and communication (0.0% YoY; Jan: 0.0% YoY) sustained.

Core inflation (DOSM) rose further to +1.8% YoY (Jan: +1.6% YoY), mainly attributed to higher prices for transport (+3.5% YoY; Jan: +3.3% YoY), food & non-alcoholic beverages (+3.2% YoY; Jan: +2.8% YoY), furnishings, household equipment & maintenance (+3.2% YoY; Jan: +3.1% YoY), restaurants & hotels (+2.6% YoY; Jan: +2.1% YoY) and recreation services & culture (+1.6% YoY; Jan: +1.2% YoY).

HLIB’s VIEW

The recent escalation in Russia-Ukraine geopolitical tensions has renewed pressure on food and energy prices already exacerbated by prolonged supply-related disruptions, posing upside risk to our 2.0% YoY CPI forecast for 2022. We maintain our expectation for BNM to raise OPR by 25bps in 4Q22.

Source: Hong Leong Investment Bank Research - 28 Mar 2022