Headline inflation increased in Apr to +2.3% YoY (Mar: +2.2% YoY), matching the consensus estimate. Inflationary pressures mainly stemmed from higher food inflation amid the persistent strain on supply chains. Meanwhile, core inflation picked up to +2.1% YoY (Mar: +2.0% YoY).

DATA HIGHLIGHTS

Headline inflation increased in Apr to +2.3% YoY (Mar: +2.2% YoY), matching the consensus estimate. On a MoM basis, CPI eased to +0.2% (Mar: +0.3%), as the rise in food & non-alcoholic beverages (+0.4%; Mar: +0.3%) and recreation services & culture (+0.4%; Mar: -0.2%) were offset by moderation in transport index (+0.4%; Mar: +1.1%).

On a YoY basis, CPI was driven by food & non-alcoholic beverages (+4.1% YoY; Mar: +4.0% YoY), transport (+3.0% YoY; Mar: +2.6% YoY) and restaurant & hotels (+3.2% YoY; Mar: +2.9% YoY). Recreation services & culture (+1.3% YoY; Mar: +1.1% YoY) also increased, offsetting the moderation in furnishings, household equipment & maintenance (+2.7% YoY; Mar: +3.0% YoY) and housing, utilities & other fuels (+0.8% YoY; Mar: +0.9% YoY).

The transport index grew at a faster pace (+3.0% YoY; Mar: +2.6% YoY) owing to price increases for spare parts & accessories and repairs & maintenance. On a MoM basis, the index moderated (+0.4%; Mar: +1.1%) following slower rise in RON 97 (+2.2%; Mar: +16.6%). RON 95 and diesel prices remained unchanged.

Food inflation picked up (+4.1% YoY; Mar: +4.0% YoY) amid higher demand during the Ramadan period. The acceleration was driven by the rise in ‘food away from home’ (+4.4% YoY; Mar: +4.0% YoY) while ‘food at home’ eased slightly (+4.1% YoY; Mar: +4.3% YoY). Milk, cheese and eggs (+7.2% YoY; Mar: +7.0% YoY), rice, bread & other cereals (+2.7% YoY; Mar: +2.2% YoY), oils & fats (+3.5% YoY; Mar: +3.4% YoY) and fruits (+2.3% YoY; Mar: +1.5% YoY) saw an increase in price. Meanwhile, prices for meat (+6.2% YoY; Mar: +7.6% YoY), fish & seafood (+3.8% YoY; Mar: +4.1% YoY) and vegetables (+4.5% YoY; Mar: +5.1% YoY) have moderated. However, meat prices could see an uptick in the near term due to the nationwide supply shortage of chicken. On the global front, food inflation eased (+29.8% YoY; Mar: +33.9% YoY) following more moderate growth rates across meat, dairy, cereals, oils and sugar.

Services inflation rose (+1.9% YoY; Mar: +1.6% YoY) following growth in restaurants & hotels (+3.2% YoY; Mar: +2.9% YoY), recreation services & culture (+1.3% YoY; Mar: +1.1% YoY) and education (+1.0% YoY; Mar: +0.9% YoY). Communication remained flat.

Core inflation (DOSM) picked up (+2.1% YoY; Mar: +2.0% YoY), mostly driven by transport (+4.2% YoY; Mar: +3.9% YoY), food & non-alcoholic beverages (+3.8% YoY; Mar: +3.5% YoY), restaurant & hotels (+3.2% YoY; Mar: +2.9% YoY), and recreation services & culture (+1.3% YoY; Mar: +1.1% YoY).

HLIB’s VIEW

We continue to see upside risk to inflation (our 2022 forecast: +2.7%), mainly emanating from food inflation amid persistent supply chain disruptions and rising costs of production. In addition, the ongoing domestic demand recovery and consequent increase in private sector wages may also pose upside risk. We opine BNM will increase OPR by 50bps in 2H 2022.

Source: Hong Leong Investment Bank Research - 26 May 2022