● The headline inflation accelerated to a five-month high of 3.3% YoY in November, a tad above expectations (KIBB: 3.2%; Consensus: 3.2%; Oct: 2.9%)

- The higher inflation rate is in line with the reopening of most economic activities under the National Recovery Plan (NRP) amid continued supply chain disruption and the unleashed pent up demand.

- On a monthly basis, CPI moderated to 0.2% (Oct: 0.7%), while core inflation expanded to 0.9% YoY (Oct: 0.7%).

● The higher inflation rate was mainly due to an increase in food and transport prices

- Transport (12.7%; Oct: 11.3%): edged up to a six-month high, partly due to a second straight month of increase in RON97 petrol price (7.7% MoM, Oct: 4.1%), in line with a relatively higher Brent crude oil price on YoY basis.

- Food & non-alcoholic beverages (2.7%; Oct: 1.9%): accelerated to the fastest rate since March 2018. On a MoM basis, the index expanded by 0.6% (Oct: 0.2%), matching September's performance in line with the reopening of most economic and social sectors.

● Rising inflation across advanced and developing economies due to strong demand and supply shortages as the economy gradually reopen on faster vaccination rate

- US (6.8%; Oct: 6.2%): surged to the highest level since 1982, on a broad-based increase across components, and led by higher energy and food prices.

- Thailand (2.7%; Oct: 2.4%): expanded to a seven-month high due to higher grocery and fuel prices.

- China (2.3%; Oct: 1.5%): rose to a 15-month high due to rising food costs.

● 2021 headline inflation forecast maintained at 2.5% (2020: -1.2%) and is expected to moderate slightly to 2.4% in 2022

- The headline inflation rate is expected to remain elevated in the final month of 2021 and going into 2022 on the back of rising demand and ongoing disruption in the supply chain of production. Food prices are expected to rise in tandem with the festive season period and are likely to be affected by severe floods in Klang Valley and other states. Rising global food as reflected in the latest FAO Food Price Index (27.3% YoY; Oct: 31.3%) and fuel prices amid the post-pandemic supply chain chaos will add to inflationary pressure in the domestic economy. Nonetheless, we continue to remain cautious amid rising concerns over the spread of the Omicron variant.

- Despite a positive economic outlook amid the improving domestic COVID-19 situation and ongoing vaccination efforts, we believe that Bank Negara Malaysia (BNM) will keep the policy rate unchanged at the next Monetary Policy Committee meeting in January 2022 .

Source: Kenanga Research - 23 Dec 2021