Inflation rate rebounds slightly

• CPI expanded 0.2% y-o-y in March, after two consecutive months of deflation

• Led by higher Food and Beverages as well as Housing and Utilities indices amid a softer contraction within the Transport segment

• We maintain our 2019 inflation forecast of 1.0% - 1.5% y-o-y

Highlights

Malaysia’s Consumer Price Index (CPI) expanded 0.2% y-o-y during March, compared to a 0.4% contraction in the previous month. YTD-Mar19, consumer prices rose by 0.3% y-o-y compared to the same corresponding period in the previous year (YTD-Mar18: +1.8%).

During the month, the expansion in inflation was attributed to higher prices for Food and Non-Alcoholic Beverages (+1.1% y-o-y); Alcoholic Beverages and Tobacco (+1.1% y-o-y) and Housing and Utilities (+2.0% y-o-y), which offset the contraction in Transport (-3.0% y-o-y), Clothing and Footwear (-3.0% y-o-y) and Miscellaneous Goods and Services (-2.0% y-o-y).

Meanwhile, the price of durable and non-durable goods fell by 3.1% y-o-y and 1.2% y-o-y, respectively, while the price of services grew by 1.8% y-o-y during the month.

Furthermore, inflation in urban areas expanded 0.2% y-o-y, while inflation in rural areas fell by 0.1% y-o-y during the month.

Our comments

March’s inflation rate came in below Bloomberg’s consensus estimate of 0.3% y-o-y.

The 3-month moving CPI average contracted 0.3% y-o-y, match a similar level in the preceding month. This signals that prices may have likely bottomed out and possibly set to normalise in the upcoming months.

Meanwhile, March’s CPI expanded 0.2% m-o-m (Feb: +0.2%), which was mainly due the expansion in Transport (+2.6% m-o-m); Furnishing and Household Equipment (+0.3% m-om) and Miscellaneous Goods and Services (+0.4% m-o-m).

In terms of core inflation (excluding the Food and Transport segments), March’s core CPI grew 0.6% y-o-y (Feb: +0.5% y-o-y), suggesting that the underlying inflation has already begun to turnaround towards an inflationary path.

The fall in Transport prices (-3.0% y-o-y) was mainly due to a contraction in the Fuels & Lubricants for Personal Transport Equipment sub-segment (-4.8% y-o-y). This sub-segment captured the lower pump prices of RON95 during the month compared to March 2018 (Mar19: RM2.08 per litre vs. Mar18: RM2.20 per litre).

On the other hand, price of Diesel was the same for both years at RM2.18 per litre, while price of RON97 was higher (Mar19: RM2.51 per litre vs. Mar18: RM2.46 per litre), softening the contraction within the Transport segment. However, pump prices were higher compared to the previous month as this sub-segment expanded 2.6% m-o-m.

All in all, accounting for the unexpected deflationary period and fixing of pump prices (RON95 and Diesel) in end-February, coupled with expectations of normalising inflationary pressures in the second half of 2019, we maintain our 2019 inflation forecast to between 1.0% and 1.5% y-o-y. We also reiterate our 2019 GDP growth forecast of 4.5% (2018: +4.7%).

Source: Alliance Research - 25 Apr 2019