Below expectations – Malaysia’s headline inflation eased to +0.2% y-o-y in Nov’18, marginally below +0.4% y-o-y in prior month. The languid growth in Nov’18 inflation was due to moderate growths in most of sub-sectors. Nov’18 CPI result was below our in-house forecast and market forecast of +1.3% and +0.4% respectively. For core inflation (which excludes goods with high price fluctuation), it rose to +0.5% y-o-y (vs Oct’18: +0.4% y-o-y).

Modest growth – Among sub-sectors which showed modest inflation growth were Housing, water electricity, gas & other fuel index: +2.0% y-o-y (vs Oct’18: +2.1% y-o-y), Furnishings, household equipment and routine household maintenance: -0.1% y-o-y (vs Oct’18: -0.3% y-o-y), Communication: - 1.3% y-o-y (vs Oct’18: -1.5% y-o-y), Recreation services & culture: -0.3% y-o-y (vs Oct’18: -0.2% y-o-y) and Miscellaneous goods and services: -2.6% y-o-y (vs Oct’18: -2.8% y-o-y). However, some of the key components showed some marginal growths in Nov’18 such as of Alcoholic beverages and tobacco: +1.0% y-o-y (vs Oct’18: -0.8% y-o-y) and Education: +1.4% y-o-y (vs Oct’18: +1.1% y-o-y).

Plunge in Transport inflation – Nov’18 transport inflation contracted to 2.3% y-o-y for the first time since Apr’18 as compared to +0.8% y-o-y in Oct’18. Average retail price for Nov’18 was RM2.20 for RON95 (vs Oct’17: RM2.31), RM 2.81 for RON97 (vs Oct’17: RM2.58) and RM2.18 for Diesel (vs Oct’17: RM2.20). Besides, on a monthly basis, the Transport index eased to +0.1% m-o-m, compared to +0.3% m-o-m in the previous month growth.

Flattish growth in Food inflation – Food & Non-Alcoholic beverages which accounted for 29.5% in the total CPI, soothed to +1.1% y-o-y this month from +1.2% y-o-y last month. Easing food inflation in this month was aided by Meat: -2.2% y-o-y (vs Oct’18: -0.3% y-o-y), Fish & seafood: +0.5% y-o-y (vs Oct’18: +0.8% y-o-y), Oils & fats: -0.7% y-o-y (vs Oct’18: -0.8% y-o-y) and Vegetables: +0.8% y-o-y (vs Oct’18: +3.0% y-o-y). Meanwhile, sub-group index such as Fruits (+0.2% y-o-y vs Oct’18:-0.4% y-o-y) improved in this month.

Four states surpassed national CPI – National CPI in Nov’18 grew +0.2% (vs Oct’18: +0.6%). Four states which surpassed the national CPI were Wilayah Persekutuan Kuala Lumpur (+1.2%), Negeri Sembilan (+0.6%), Pulau Pinang (+0.6%) and Johor (+0.3%) Meanwhile, Selangor & Wilayah Persekutuan Putrajaya showed the same rate as the national CPI. We reckon that inflation rates across the states are still manageable amid current resilient economic condition.

Foresee 2018 inflation growth softens at +1.1% y-o-y – We opine that inflation will grew moderately to +1.1% y-o-y in this year as compared to +3.7% y-o-y in 2017 as we believe the inflationary pressure from Sales and Service Tax (SST) is still manageable coupled with lower crude oil prices. For 2019, we reckon that headline CPI to inch up to +2.5% y-o-y following inflationary pressure from floating fuel price starting 2Q19 as fuel price subsidy can only be enjoyed by selected group of people, i.e. low-andmiddle income group. Also, inflation is lifted by low base effect arising from the tax holiday period in June’18 to Aug’18. Still, 2019 inflation is expected to grow at a modest mode as we believe global crude oil prices will stabilize at current level amid prevailing slowing global economy and oversupply condition.

Source: JF Apex Securities Research - 20 Dec 2018