• The headline inflation marked its eleventh straight month of annual declines in January (-0.2%), albeit at a much slower pace than Dec’s -1.4%, outpacing market’s expectation (KIBB: -0.8%; consensus: -0.8%)
  • Despite the imposition of Movement Control Order (MCO) 2.0 starting 13th Jan in most part of the country, demand for food remains elevated as consumers stockpiled for future consumption. In addition, rising global crude oil prices has helped to push Malaysia’s fuel prices higher, signalling that inflation may be around the corner.
     
  • MoM: rose at the fastest pace in 47 months (1.2%; Dec: 0.5%).
     
  • Core inflation: remained unchanged for the third consecutive month at 0.7%.
     
• Smaler YoY decline in fuel prices and electricity cost was partially offset by rising food prices
  • Transport (-5.1%; Dec: -8.4%): smallest drop in 11 months as retail fuel price declined by less (RON95: -10.2%; Dec: - 16.3%), in line with the improvement in Brent crude oil price (-3.9 YoY to USD55.9/bbl; Dec: -21.5% to USD51.8/bbl).
     
  • Housing, water, electricity, gas & other fuels (-0.7%; Dec: -3.3%): less severe contraction despite higher base of last year as the current PERMAI electricity bill discount is lesser than last year’s PRIHATIN electricity discounts.
     
  • Food and non-alcoholic beverage (1.5%; Dec: 1.4%): marginally improved to a 3-month high, supported by an increase in prices of food at home (1.5%; Dec: 1.3%).
     
• Mixed inflation trend across advanced and developing economies
  • Eurozone (0.9%): rebounded in January after five straight months of deflation due to an increase in economic activity, especially in the services sector.
     
  • China (-0.3%): fallen back into a deflation after a brief improvement in December (0.2%), mainly due to renewed COVID- 19 restrictions.
     
  • Singapore (0.2%): edged up in January, driven by an increase in the prices of accommodation and transport.
     
• 2021 CPI forecast retained at 1.4% (2020: -1.2%) despite Malaysia's vaccination drive and higher commodity prices
  • Domestic economy is expected to pick up speed through 2Q21 after the MCO 2.0 measures is lifted and the vaccination programme enters a new phase. The unleashing of pent-up demand might cause inflationary pressures to resurface in the near future. However, we are now cautious on the risk of stagflation amid Malaysia’s relatively high unemployment rate.
     
  • BNM is likely to stand pat on interest rates at its upcoming monetary policy committee meeting in March. However, the option to cut the overnight policy rate (OPR) lower by at least 25bps remains on the table should the economic outlook takes a turn for the worse.

Source: Kenanga Research - 25 Feb 2021