• CPI expanded slightly to +1.4% in April, compared to +1.3% in March

• Driven by higher food, housing and utilities prices

• Maintain 2018 inflation forecast at a range between 2.0%-2.5%

Highlights

In April, the Consumer Price Index (CPI) rose 1.4% y-o-y, slightly higher than +1.3% in the preceding month.

During the month, price inflation was driven by key items in the basket of goods, namely Food and Non-alcoholic Beverages (+2.6%) Housing and Utilities sectors (+2.0%), and Transport sector (+0.4%).

Meanwhile, prices of non-durable goods and services expanded 1.1% y-o-y and 2.2% y-o-y respectively. However, durable goods contracted 0.5% y-o-y.

Inflation in urban and rural area continues to expand at 1.5% and 1.2% y-o-y, respectively.

Our comments

April’s inflation rate came in below Bloomberg consensus estimate of 1.6%.

Overall, inflationary pressures continue to ease, as the 3-month moving average has been on a descending trend since Oct17 (Apr18: +1.25% vs Mar18: +1.7%).

Furthermore, on a seasonally adjusted (SA) m-o-m basis, CPI growth remained unchanged compared to the previous month, supporting the view of moderating inflationary pressures from a high base in 2017.

During the month, the Food and Non-alcoholic Beverages sector (29.5% of total CPI) declined 0.2% m-o-m (Mar: -0.5%), as prices of foods such as fresh seafood, eggs, fruits, and vegetables fell by 0.5%, 1.7%, 0.2% and 2.3% respectively.

At the same time, the Transport index (14.6% of total CPI) remained stagnant compared to the preceding quarter, reflecting unchanged pump prices since end-March (YTD-avg RON95: RM2.23 per litre).

Brent crude oil price continues to average higher at USD71.8 per barrel in April (Mar avg: USD66.7 per barrel). However, retail pump prices have remained stable during the month mainly due to the strengthening of Ringgit (Apr avg: RM3.89 per USD vs Mar avg: RM3.90 per USD), along with the resumption of fuel subsidy by the federal government, despite it being abolished in end-2014.

We expect price pressures to remain benign throughout 2018, due to lower cost-push pressures, following the implementation of zero-rated GST effective 1 June 2018 and reintroduction of targeted fuel subsidies by the new Pakatan Harapan government.

As such, we reiterate our 2018 inflation forecast of 2.0%-2.5% (2017: +3.7%) and GDP growth forecast of 5.4% (2017: +5.9%).

Source: Alliance Research - 24 May 2018