Headline inflation eased to +3.8% YoY in Dec (Nov: +4.0% YoY), slightly below consensus estimate of +3.9% YoY. Inflation was mainly weighed down by slower growth in food & non-alcoholic beverages. Core inflation also moderated slightly to +4.1% YoY (Nov: +4.2% YoY). In 2022, headline inflation rose +3.3% YoY (2021: +2.5% YoY), broadly in line with our forecast of +3.4% YoY.

DATA HIGHLIGHTS

Headline inflation eased to +3.8% YoY in Dec (Nov: +4.0% YoY), below the consensus estimate of +3.9% YoY. On a MoM basis, CPI softened to +0.2% (Nov: +0.3%), mainly due to a dip in recreation services & culture (-0.9%; Nov: +0.2%) and softer growth in food & beverages (+0.5%; Nov: +0.7%). In 2022, headline inflation rose +3.3% YoY (2021: +2.5% YoY), broadly in line with our forecast of +3.4% YoY.

On a YoY basis, inflation was mainly weighed down by slower growth in food & non - alcoholic beverages (+6.8% YoY; Nov: +7.3% YoY), followed by transport (+4.9% YoY; Nov: +5.0% YoY), furnishing, household equipment & maintenance (+3.7% YoY; Nov: +3.8% YoY), and recreation services & culture (+2.4% YoY; Nov: +3.6% YoY). These offset the accelerations seen in restaurants & hotels (+7.4% YoY; Nov: +7.0% YoY), as well as housing, utilities & other fuels (+1.5% YoY; Nov: +1.4% YoY).

The transport index eased (+4.9% YoY; Nov: +5.0% YoY), following a moderation in RON97 price growth (+19.0% YoY; Nov: +28.8% YoY) relative to the previous year. However, the index posted a slight increase on a MoM basis (+0.1%; Nov: 0.0%), propped up by an upturn in transport services (+9.7%; Nov: -2.9%).

Food inflation moderated to +6.8% YoY (Nov: +7.3% YoY) following slower growth in ‘food at home’ (+4.9% YoY; Nov: +5.8% YoY) and steady growth in ‘food away from home’ (+9.6% YoY; Nov: +9.6% YoY). Inflation eased across the board, particularly in prices of meat (+7.8% YoY; Nov: +8.2% YoY), rice, bread & other cereals (+7.0% YoY; Nov: +7.5% YoY), milk, cheese & eggs (+7.1% YoY; Nov: +8.9% YoY), fish & seafood (+2.9% YoY; Nov: +3.5% YoY) and vegetables (+0.9% YoY; Nov: +3.6% YoY). Inflation also trended slightly lower for fruits (+4.0% YoY; Nov: +4.1% YoY). The slowdown in food inflation was also party attributed to the implementation of the Christmas Festive Season Maximum Price Control Scheme which ran from Dec 23 to 27 last year. On the global front, food inflation continued to decline (-1.0% YoY; Nov: -0.3% YoY), following slower growth across dairy and cereals, coupled with a steeper decline in oils.

Services inflation maintained at +4.4% YoY (Nov: +4.4% YoY), supported by the stronger growth in restaurants & hotels (+7.4% YoY; Nov: +7.0% YoY). Meanwhile, recreation services & culture (+2.4% YoY; Nov: +3.6% YoY), as well as education (+1.4% YoY; Nov: +1.5% YoY) moderated, while communications declined (-0.1% YoY; Nov: 0.0%).

Core inflation (DOSM) eased slightly (+4.1% YoY; Nov: +4.2% YoY), following slower growth across most groups; food & non-alcoholic beverages (+8.1% YoY; Nov: +8.2% YoY), transport (+7.3% YoY; Nov: +7.9% YoY), housing, utilities & other fuels (+1.7% YoY; Nov: +1.8% YoY), and recreation services & culture (+2.4% YoY; Nov: +3.6% YoY).

HLIB’s VIEW

Headline inflation has continued on a decelerating trend, in line with the easing global commodity prices. Nevertheless, risks to inflation remain tilted to the upside, stemming from a potential subsidy adjustment scheme sometime this year, as well as the impact of China’s reopening on global commodity prices. Should these risks materialise, we think BNM may increase OPR by another +25bps.

Source: Hong Leong Investment Bank Research - 25 Jan 2023