Headline inflation was higher at +2.8% YoY in May (Apr: +2.3% YoY), slightly exceeding the consensus estimate of +2.7% YoY. While most subgroups recorded an increase during the month, inflation was mostly driven by higher food, transport and housing, utilities & other fuels. Meanwhile, core inflation rate picked up +2.4% YoY (Apr: +2.1% YoY).

DATA HIGHLIGHTS

Headline inflation was higher at +2.8% YoY in May (Apr: +2.3% YoY), slightly exceeding the consensus estimate of +2.7% YoY. On a MoM basis, CPI increased (+0.6%; Apr: +0.2%) on the back of transport (+1.1%; Apr: +0.4%), food & nonalcoholic beverages (+0.9%; Apr: +0.4%), restaurants & hotels (+0.6%; Apr: +0.4%), furnishings, household equipment & maintenance (+0.5%; Apr: +0.1%) and housing, utilities & fuels (+0.3%; Apr: 0.0%).

On a YoY basis, inflation was mainly driven by higher food & non-alcoholic beverages (+5.2% YoY; Apr: +4.1% YoY), transport (+3.9% YoY; Apr: +3.0% YoY) and housing, utilities & other fuels (+1.2% YoY; Apr: +0.8% YoY). Restaurants & hotels (+3.7% YoY; Apr: +3.2% YoY), furnishings, household equipment & maintenance (+2.9% YoY; Apr: +2.7% YoY) and recreation services & culture (+1.8% YoY; Apr: +1.3% YoY) also increased.

The transport index grew at a faster pace (+3.9% YoY; Apr: +3.0% YoY), mainly due to the sharp price increase for RON 97 (+63.4% YoY; Apr: +50.7% YoY) following the rise in Brent crude oil (+64.7% YoY; Apr: +63.1% YoY).

Food inflation accelerated to +5.2% YoY (Apr: +4.1% YoY). Both ‘food at home’ (+5.5% YoY; Apr: +4.1% YoY) and ‘food away from home’ (+5.1% YoY; Apr: +4.4% YoY) ticked up. Price increases were seen across the board. Meat prices spiked further (+9.5% YoY; Apr: +6.2% YoY) amid higher prices of animal feed and stronger demand during the festive season. Vegetables (+8.1% YoY; Apr: +4.5% YoY) were driven by costlier fertiliser, logistic costs, labour shortages and weather conditions. Meanwhile, milk, cheese & eggs prices rose (+8.0% YoY; Apr: +7.2% YoY) following the shortage of chicken eggs production. Rice, bread & other cereals (+3.4% YoY; Apr: +2.7% YoY), fish & seafood (+4.3% YoY; Apr: +3.8% YoY) and fruits (+2.8% YoY; Apr: +2.3% YoY) also saw increases. On the global front, food inflation continued to ease (+20.8% YoY; Apr: +27.5% YoY) following more moderate growth across meat, dairy, cereals, oils and sugar prices.

Services inflation rose +2.3% YoY (Apr: +1.9% YoY) following growth in restaurants & hotels (+3.7% YoY; Apr: +3.2% YoY) as well as recreation services & culture (+1.8% YoY; Apr: +1.3% YoY). Education was steady (+1.0% YoY; Apr: +1.0% YoY), while communication remained flat.

Core inflation (DOSM) picked up (+2.4% YoY; Apr: +2.1% YoY), driven by transport (+4.7% YoY; Apr: +4.2% YoY), food & non-alcoholic beverages (+4.4% YoY; Apr: +3.8% YoY), recreation services & culture (+1.8% YoY; Apr: +1.3% YoY) and housing, utilities & other fuels (+1.3% YoY; Apr: +1.0% YoY).

HLIB’s VIEW

Following high food input costs and government’s plan to remove the current price ceiling of chicken, chicken eggs, and bottled cooking oil from July, we raise our 2022 CPI forecast to 3.2% YoY (previous: 2.7% YoY), within BNM’s official forecast of 2.2- 3.2% YoY. Maintain expectation for BNM to raise OPR by another 50bps in 2H22.

Source: Hong Leong Investment Bank Research - 27 Jun 2022