JF Apex Research Highlights
Consumer Price Index (CPI) – November 2019 - Lowest Since June’19
Below expectations – Malaysia’s headline inflation slowed to +0.9% y-o-y during Nov’19 (vs Oct’19: +1.1% y-o-y) underpinned by mild growth in sub-sectors. The result was below our in-house and market forecast of +1.4% y-o-y and +1.1% y-o-y respectively. As for Jan’19-Nov’19, the headline inflation grew +0.6% y-o-y as compared to +1.0% y-o-y in the corresponding period of last year. Moreover, core inflation (which excludes administered and high price fluctuation items) registered a same growth as previous month which was +1.4% y-o-y during Nov’19 (vs Oct’19: +1.4% y-o-y).
Costs of Transport remained deflated, starting normalise in 2020 onwards – Cost of transport extended its deflationary pressure to -2.4% y-o-y in Nov’19 from -2.3% y-o-y in Oct’19 due to high base effect. Overall, average monthly fuel price for Nov’19 for RON 95 was RM1.73 (vs Oct’19: RM1.66; Nov’18: RM2.20), RON 97 was RM2.19 (vs Oct’19: RM2.11; Nov’18: RM2.81), and Diesel was RM1.82 (vs Oct’19: RM1.74; Nov’18: RM2.18). Cost of transport has been deflated throughout the year and expected to remain contraction in the end of the year. However, we believe cost of transport could normalise after targeted fuel subsidies kick in as Government’s decision to remove the price cap of RON95 and return to a price float mechanism starting Jan’20, thus increasing inflationary pressure from transport and fuel related items.
Food inflation trended lower; Alcoholic & tobacco eased to 13-months low – Food inflation has trended lower again for four consecutive months, easing to +1.5% y-o-y from (vs Oct’19: +1.8% y-o-y) due to subdued growths in sub-food indexes such as Milk & egg (+1.4% y-o-y vs Oct’19: +2.3% y-o-y), Oils & fats (-0.2% y-o-y vs Oct’19: -0.3% y-o-y), Fruits (+1.1% y-o-y vs Oct’19: +1.4% y-o-y) as well as Fish and seafood (+1.3% y-o-y vs Oct’19: +1.4% y-o-y). ). Meanwhile, Alcoholic, beverages & tobacco has soothed to 13-months low to +0.4% y-o-y in Nov’19 from stellar growth of +2.2% y-o-y during prior month.
Nov’19 headline inflation lifted by Miscellaneous goods & services as well as Housing, water, electricity, gas & other fuel – Miscellaneous goods & services and Housing, water, electricity, gas & other fuel grew +2.5% y-o-y (vs Oct’19:+2.2% y-o-y) and +1.7% y-o-y (vs Oct’19:+1.6% y-o-y) respectively which contributed to the growth of Nov’19 headline inflation. Minor growth recorded for Recreation services & culture (+0.8% y-o-y vs Oct’19: +0.7% y-o-y). Meanwhile, Health and Communication inflation recorded same growth as previous month as both sub-indexes grew +1.4% y-o-y and +1.5% y-o-y respectively. However, other key CPI components growth have soothed such as Clothing & footwear (-1.1% y-o-y vs Oct’19: -1.3% y-o-y), Furnishing, household equipment & routine household maintenance (+1.5% y-o-y vs Oct’19: +1.7% y-o-y), Restaurants & hotels (+1.1% y-o-y vs Oct’19: +1.2% y-o-y) and Education (+1.6% y-o-y vs Oct’19: +1.9% y-o-y).
Three states surpassed national CPI – Three states surpassed the national CPI for the month of Nov’19. National CPI for Nov’19 was 0.9%, (vs Oct’19: 1.1%). Among the states that surpassed the national CPI were Wilayah Persekutuan Kuala Lumpur (+1.4%), Penang (+1.1%) and Selangor & Wilayah Persekutuan Putrajaya (+1.3%). Overall, we reckon that inflation rates across states are still manageable amid current resilient economic condition.
Foresee minimal inflationary growth of +0.7% y-o-y for 2019 – We expect headline inflation for Dec’19 to remain soft due to low base effect. Following minor inflationary growth during 11M19, we revise our inflation forecast for 2019 to +0.7% y-o-y from +0.8% y-o-y previously. For 2020, we expect inflation to grow at +1.8% y-o-y following implementation of Targeted Fuel Subsidy Scheme starting Jan’20 in Peninsular Malaysia and RON95 petrol price will be floated in tandem with market price. Still, we reckon that 2020 inflation is relatively low and manageable as we believe global crude oil prices will stabilize at current level amid prevailing slowing global economy and oversupply condition. On the other hand, we opine that Bank Negara Malaysia (BNM) is likely to cut the OPR by another 25bps to 2.75% from current 3.0% during 1Q20 following greater global economic downside risks and weakening domestic demand growth.
Costs of Transport remained deflated, starting normalise in 2020 onwards – Cost of transport extended its deflationary pressure to -2.4% y-o-y in Nov’19 from -2.3% y-o-y in Oct’19 due to high base effect. Overall, average monthly fuel price for Nov’19 for RON 95 was RM1.73 (vs Oct’19: RM1.66; Nov’18: RM2.20), RON 97 was RM2.19 (vs Oct’19: RM2.11; Nov’18: RM2.81), and Diesel was RM1.82 (vs Oct’19: RM1.74; Nov’18: RM2.18). Cost of transport has been deflated throughout the year and expected to remain contraction in the end of the year. However, we believe cost of transport could normalise after targeted fuel subsidies kick in as Government’s decision to remove the price cap of RON95 and return to a price float mechanism starting Jan’20, thus increasing inflationary pressure from transport and fuel related items.
Food inflation trended lower; Alcoholic & tobacco eased to 13-months low – Food inflation has trended lower again for four consecutive months, easing to +1.5% y-o-y from (vs Oct’19: +1.8% y-o-y) due to subdued growths in sub-food indexes such as Milk & egg (+1.4% y-o-y vs Oct’19: +2.3% y-o-y), Oils & fats (-0.2% y-o-y vs Oct’19: -0.3% y-o-y), Fruits (+1.1% y-o-y vs Oct’19: +1.4% y-o-y) as well as Fish and seafood (+1.3% y-o-y vs Oct’19: +1.4% y-o-y). ). Meanwhile, Alcoholic, beverages & tobacco has soothed to 13-months low to +0.4% y-o-y in Nov’19 from stellar growth of +2.2% y-o-y during prior month.
Nov’19 headline inflation lifted by Miscellaneous goods & services as well as Housing, water, electricity, gas & other fuel – Miscellaneous goods & services and Housing, water, electricity, gas & other fuel grew +2.5% y-o-y (vs Oct’19:+2.2% y-o-y) and +1.7% y-o-y (vs Oct’19:+1.6% y-o-y) respectively which contributed to the growth of Nov’19 headline inflation. Minor growth recorded for Recreation services & culture (+0.8% y-o-y vs Oct’19: +0.7% y-o-y). Meanwhile, Health and Communication inflation recorded same growth as previous month as both sub-indexes grew +1.4% y-o-y and +1.5% y-o-y respectively. However, other key CPI components growth have soothed such as Clothing & footwear (-1.1% y-o-y vs Oct’19: -1.3% y-o-y), Furnishing, household equipment & routine household maintenance (+1.5% y-o-y vs Oct’19: +1.7% y-o-y), Restaurants & hotels (+1.1% y-o-y vs Oct’19: +1.2% y-o-y) and Education (+1.6% y-o-y vs Oct’19: +1.9% y-o-y).
Three states surpassed national CPI – Three states surpassed the national CPI for the month of Nov’19. National CPI for Nov’19 was 0.9%, (vs Oct’19: 1.1%). Among the states that surpassed the national CPI were Wilayah Persekutuan Kuala Lumpur (+1.4%), Penang (+1.1%) and Selangor & Wilayah Persekutuan Putrajaya (+1.3%). Overall, we reckon that inflation rates across states are still manageable amid current resilient economic condition.
Foresee minimal inflationary growth of +0.7% y-o-y for 2019 – We expect headline inflation for Dec’19 to remain soft due to low base effect. Following minor inflationary growth during 11M19, we revise our inflation forecast for 2019 to +0.7% y-o-y from +0.8% y-o-y previously. For 2020, we expect inflation to grow at +1.8% y-o-y following implementation of Targeted Fuel Subsidy Scheme starting Jan’20 in Peninsular Malaysia and RON95 petrol price will be floated in tandem with market price. Still, we reckon that 2020 inflation is relatively low and manageable as we believe global crude oil prices will stabilize at current level amid prevailing slowing global economy and oversupply condition. On the other hand, we opine that Bank Negara Malaysia (BNM) is likely to cut the OPR by another 25bps to 2.75% from current 3.0% during 1Q20 following greater global economic downside risks and weakening domestic demand growth.
Source: JF Apex Securities Research - 23 Dec 2019
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