Within expectation – Consumer Price Index (CPI) in May’18 stood at 121.1, having accelerated +1.8% y-o-y as compared to +1.4% y-o-y in the previous month, mainly buoyed by Transport index, as well as other main components such as Housing, water, electricity, gas & other fuels indexes and Food & NonAlcoholic beverages. The result was within our estimate as well as market expectation. Besides that, on a monthly basis, the CPI reading improved +1.2% m-o-m. For core inflation (which excludes goods with high price fluctuation), it was maintained at +1.5% y-o-y in May’18.

Higher Transport index – Transport component in May’18 soared +3.8% y-o-y as compared to +0.4% y-o-y in Apr’18. Meanwhile, on a monthly basis, the Transport index was flat at +0.2% m-o-m. Average monthly fuel price in May’18 stands at RM2.2 for RON95, RM2.47 for RON97 and RM2.18 for Diesel. Other than that, on 30th May, the Ministry of Finance (MoF) announced that it will start implementing price stabilisation measures on fuel prices. Diesel and RON95 petrol prices will remain at current pump prices, whereas RON97 petrol will be floated and its price will be determined by the market. Currently, retail prices of RON95 petrol and diesel Euro 2M will be maintained at RM2.20 and RM2.18 per litre respectively.

Lower Food inflation – Food & Non-Alcoholic beverages decelerated to +2.2% y-o-y in May’18 (vs Apr’18:+2.6% y-o-y). The subdued food inflation was due to moderate growth in most of the sub-food such as Fish and Seafood (+3.2% y-o-y vs Apr’18: +4.1% y-o-y), Fruits (+1.9% y-o-y vs Apr’18: +1.9% yo-y) and Sugar, Jam, Honey, Choc & Confectionary (+1.2% y-o-y vs Apr’18: +1.2% y-o-y).

... as well as other key CPI components – Meanwhile, other key CPI components also showed moderate growth such as Housing, water, electricity, gas & other fuels (+2.1% y-o-y vs Apr’18: +2.0% yo-y), Furnishings, household equipment and routine household maintenance (+1.5% y-o-y vs Apr’18: +1.8%) as well as Health (+1.9% y-o-y vs Apr’18: +2.1%).

Three states surpassed national CPI – National CPI May’18 was +1.8% (vs Apr’18: +1.4%). Three states that surpassed the national CPI were Selangor & Wilayah Persekutuan Putrajaya (+2.1%), Johor (+2.0%) and Wilayah Persekutuan Kuala Lumpur (+2.2%). We reckon that inflation rates across the states are still manageable amid current resilient economic condition.

Growth expected in June’18 inflation – We opine that inflation in June’18 will pick up slightly as the index was affected by higher food prices during the Hari Raya festive season as well higher transport index following the float mechanism for RON 97 fuel price. Therefore, we expect headline inflation for 2018 to be at +2.5% y-o-y as we believe the stabilisation of commodity prices and strengthening in Ringgit would tame domestic inflation. On the other hand, we expect BNM to keep its OPR unchanged, currently at 3.25%, for 2018 amid prevailing robust economic growth and manageable inflation.

Source: JF Apex Securities Research - 21 Jun 2018