● The headline inflation remained unchanged at 2.2% YoY in March, a tad below expectation (KIBB and Consensus: 2.3%; Feb: 2.2%)

- Inflationary pressure has remained fairly muted in the 1Q22 (2.2%; 4Q21: 3.2%) due to a higher base from last year, however food prices have continued to climb due to supply chain constraints, squeezing household’s income.

- On a monthly basis, CPI rose marginally (0.3% MoM; Feb: 0.2%) amid a sharp rise in transport inflation (1.1% MoM; Feb: 0.2%), while core inflation increased to 2.0% YoY, a level last seen since August 2019.

● Higher food and house maintenance costs were equally offset by a continued YoY slowdown in transport prices

- Transport (2.6%; Feb: 3.9%): softened to a 13-month low, partly due to a drop in vehicle purchases (-0.2%; Feb: 0.0%) and a slowdown in the cost of operation of personal transport equipment (4.4%; Feb: 6.3%).

- Food & non-alcoholic beverages (4.0%; Feb: 3.7%): soared to its highest level since December 2017 due an increase in prices of both food at home (4.3%; Feb: 4.1%) and away from home (4.0%; Feb: 3.6%).

- Housing, water, electricity, gas & other fuels (0.9%; Feb: 0.8%): rose due to higher maintenance costs (4.1%; Feb: 3.9%).

● Rising inflationary pressure across advanced and developing economies due to the impact of Russia-Ukraine war

- US (8.5%; Feb: 7.9%): surged to the highest level since December 1981, driven mainly by rising energy and food costs, supply constraints and strong consumer demand.

- South Korea (4.1%; Feb: 3.7%): accelerated at its fastest pace in more than 10 years as soaring energy and commodity costs kept adding to price-growth pressure.

- Thailand (5.7%; Feb: 5.3%): climbed for the third straight month to reach its highest level since the 2008 Global Financial Crisis, propelled mainly by increasing oil, electricity and food prices.

● 2022 headline inflation forecast maintained at 2.9% (2021: 2.5%) as the ongoing global supply chain disruptions may continue to increase cost pressures

- With COVID-19 pandemic still raging on in China, most major cities (i.e. Shanghai) may continue to remain under strict lockdown, threatening further disruption to the supply chain. On top of that, despite Malaysia’s low exposure to Russia, the ongoing war in the Eastern Europe may also put upward pressure on consumer prices, especially on staple foods. It is to note that the FAO’s food price index jumped by 12.6% MoM in March, a new record high. Nevertheless, government price control scheme and fuel subsidies may help to partially cushion the impact of the rising cost of living for now.

- Amid the current sombre global economic outlook and heightened market uncertainties due to the Russia-Ukraine war, China’s persistent zero-COVID-19 policy and faster-than-expected monetary policy tightening by major central banks, the Bank Negara Malaysia may likely maintain its accommodative stance at the policy meeting in May to support recovery.

Source: Kenanga Research - 25 Apr 2022