Below expectation – Consumer Price Index (CPI) in Feb’18 stood at 121.3, same as last month’s reading but slipped to +1.6% y-o-y as compared to +2.7% in previous month. The lower-than-expected result was dented by moderate growths in all of main components. The result was below our in-house and consensus expectations of +1.6% and +1.9% respectively. Besides, core inflation fell to +1.8% y-o-y in Feb’18 from +2.2% y-o-y in Jan’18.

Transport index dropped sharply – Transport component decelerated to -0.3% y-o-y in Feb’18 from +5.7% y-o-y in Jan’18, due to high base effect in the corresponding period of last year. Besides, the Transport index on a monthly basis eased to -0.6% m-o-m (v.s Jan’18: +0.4%) following drop in average monthly fuel prices. Average monthly fuel price index in Feb’18 stood at RM2.26 and RM2.53 for RON95 and RON97 (vs Jan’18: RM2.29; RM2.56), while RM2.24 for Diesel (vs Jan’18: RM2.32).

Food inflation remained moderate – Food and Non-Alcoholic beverage components which account for 29.5% of CPI components continued to grow at slower pace, posting a growth of +3.0% y-o-y as compared to +3.8% in the last month. The subdued growth recorded in component was mainly dragged by sluggish growths in sub-group components such as Meat (-0.6% y-o-y, v.s Jan’18: +1.9%), Milk & Eggs (+1.6% y-o-y, v.s Jan’18: +2.5%) and Vegetables (+1.7% y-o-y, v.s Jan’18: +7.6%). Besides, other key components also registered mild inflation in Feb’18 such as Clothing & Footwear (- 0.7% y-o-y vs Jan’18: -0.3%), Housing, water, electricity, gas & others fuels (+2.0% y-o-y vs Jan’18: +2.2%), Furnishing, household equipment & routine household maintenance (+2.1% y-o-y vs Jan’18: +2.6%), and Miscellaneous goods & services (+2.1% y-o-y vs Jan’18: +2.6%).

Reckon March’18 inflation to remain soft – We reckon inflation in Mar’18 to remain soft as we expect Transport inflation to trend lower, as well as other main components. For full year 2018, we maintain our inflation rate forecast of +3.0% as global crude oil prices to stabilize amid current global economic condition. Besides that, appreciation in Ringgit towards US Dollar could curtail our retail fuel prices thus reducing transport inflation. On the other hand, we expect that BNM could keep its OPR unchanged, currently at 3.25%, for 2018 amid prevailing robust economic growth and manageable inflation.

Source: JF Apex Securities Research - 22 Mar 2018