Headline inflation picked up to +4.4% YoY in Jul (Jun: +3.4% YoY), matching the consensus estimate. Inflation was mostly driven by higher prices for food, transport, and housing, utilities & other fuels. The increase was also partly due to the low base effect following the electricity bill discount implemented in 3Q21. Core inflation rate rose to +3.4% YoY (Jun: +3.0% YoY).

DATA HIGHLIGHTS

Headline inflation accelerated to +4.4% YoY in Jul (Jun: +3.4% YoY), matching the consensus estimate. On a MoM, CPI eased (+0.4%; Jun: +0.6%), as the rise in furnishings, household equipment & maintenance (+0.6%; Jun: +0.4%) and housing, utilities & other fuels (+0.1%; Jun: 0.0%) were offset by a moderation in food & beverages (+0.7%; Jun: +1.2%) and transport (+0.5%; Jun: +1.3%).

On a YoY basis, all index groups picked up except for communications. CPI was mainly driven by food & non-alcoholic beverages (+6.9% YoY: Jun: +6.1% YoY), transport (+5.6% YoY; Jun: +5.4% YoY), and housing, utilities & other fuels (+3.8% YoY; Jun: +1.2% YoY). Furnishings, household equipment & maintenance (+4.0% YoY; Jun: +3.4% YoY), restaurants & hotels (+5.8% YoY; Jun: +5.0% YoY) and recreation services & culture (+2.5% YoY; Jun: +2.2% YoY) also saw an uptick. The increase in CPI was also partly due to the low base effect following the electricity bill discount implemented for domestic consumers from Jul to Sep last year.

The transport index accelerated (+5.6% YoY; Jun: +5.4% YoY) mainly owing to price increases in operations of personal transport equipment. On a MoM basis, the index slowed (+0.5%; Jun: +1.3%) amid a drop in RON97 prices (-1.1% MoM; Jun: +12.5% MoM) and lower average Brent oil price (USD105.1/brl; Jun: USD117.5/brl).

Food inflation accelerated to +6.9% YoY (Jun: +6.1% YoY). Both ‘food away from home’ (+7.8% YoY; Jun: +6.6% YoY) and ‘food at home’ (+6.4% YoY; Jun: +6.1% YoY) ticked up. Meat prices continued to rise (+12.0% YoY; Jun: +11.9% YoY), followed by milk, cheese & eggs (+9.1% YoY; Jun: +7.9% YoY), rice, bread & other cereals (+5.5% YoY; Jun: +4.2% YoY), oils & fats (+4.6% YoY; Jun: +3.3% YoY), as well as fruits (+3.9% YoY; Jun: +3.5% YoY). Meanwhile, prices for vegetables (+7.1% YoY; Jun: +8.0% YoY) and fish & seafood (+4.2%; Jun: +4.3% YoY) have moderated. On the global front, food inflation eased to +13.1% YoY (Jun: +23.1% YoY) following slower price growth across meat, cereals, oils and sugar.

Services inflation was higher at +3.4% YoY (Jun: +2.9% YoY), following growth in restaurants & hotels (+5.8% YoY; Jun: +5.0% YoY), recreation services & culture (+2.5% YoY; Jun: +2.2% YoY) and education (+1.2% YoY; Jun: +1.1% YoY).

Meanwhile, communications remained flat.

Core inflation (DOSM) rose (+3.4% YoY; Jun: +3.0% YoY), mainly driven by food & non alcoholic beverages (+6.8% YoY; +5.6% YoY), transport (+6.1% YoY; Jun: +5.2% YoY), furnishings, household equipment & maintenance (+4.0% YoY; Jun: +3.4% YoY) and recreation services & culture (+2.5% YoY; Jun: +2.2% YoY).

HLIB’s VIEW

Headline inflation is expected to trend higher in the near term, mainly driven by the still high food prices and low base effect following the three-month electricity bill discount implemented in Jul last year. However, the extent of upward pressures to inflation is expected to remain partially contained due to existing price controls and subsidies. We continue to expect BNM to increase the OPR by 25bps in Sep.

Source: Hong Leong Investment Bank Research - 30 Aug 2022