• CPI expanded 0.2% y-o-y in May, unchanged from April

• Expect inflationary pressures to remain subdued due to weak commodity prices and policy implementations

• We have lowered our 2019 inflation forecast to 0.8% y-o-y

Highlights

Malaysia’s Consumer Price Index (CPI) expanded 0.2% y-o-y during May, similar to the previous month. YTD-May19, CPI contracted by 0.1% y-o-y (YTD-May18: +1.7% y-o-y).

In May, the expansion in inflation was attributed to higher prices for Housing & Utilities (+1.8% y-o-y); Alcoholic Beverages & Tobacco (+1.3% y-o-y) and Food & Non-Alcoholic Beverages (+1.2% y-o-y), which offset the contraction in Clothing & Footwear (-3.2% y-o-y); Transport (-2.5% y-o-y) and Miscellaneous Goods and Services (-2.1% y-o-y).

Meanwhile, the price of durable and non-durable goods fell by 2.8% y-o-y and 0.9% y-o-y, respectively, while the price of services grew by 1.6% y-o-y during the month.

Furthermore, inflation in urban areas and rural areas expanded 0.2% y-o-y and 0.1% y-o-y, respectively, during the month.

Our comments

May’s inflation rate came in lower than Bloomberg’s consensus estimate of 0.3% y-o-y.

In May, the 3-month CPI moving average expanded 0.2% y-o-y compared to stagnant growth in April while core inflation (excluding Food and Transport segments) grew 0.4% yo-y (Apr: +0.5% y-o-y) – both indicating that prices remained stable with some upside in the coming months.

Meanwhile, Transport prices stayed soft in May (May: -2.5% y-o-y vs. Apr: -2.6% y-o-y) mainly due to the continued contraction within the Fuels & Lubricants for Personal Transport Equipment sub-segment (May: -4.1% y-o-y vs. Apr: -4.6% y-o-y). This sub-segment captured the lower pump prices of RON95 during the month compared to May 2018 (May19: RM2.08 per litre vs. May18: RM2.20 per litre).

On the other hand, the price of Diesel was the same for both years at RM2.18 per litre, while the price of RON97 was higher (May19: RM2.74 per litre vs. May18: RM2.47 per litre), reducing the contraction within the Transport segment. Pump prices were higher compared to the previous month – this sub-segment expanded 0.2% m-o-m.

During the same month, Brent crude oil price averaged lower at USD70.9 per barrel (Apr: USD71.6 per barrel) after rising persistently for six consecutive months since December 2018. Brent crude oil price has been hovering between USD65.0 and USD72.0 per barrel since reaching its lowest level of USD57.7 per barrel in December 2018.

Recently, the National Cost of Living Action Council (MTSHN) has announced the implementation of the 100 Basic Goods Programme (BA100) to tackle the rising cost of living issue. In fact, the prices of 100 basic goods (sugar, flour, rice and etc.) will be constantly monitored to ensure the price stability of such basic goods.

Overall, we have lowered our 2019 inflation forecast to 0.8% y-o-y (from 1.0%-1.5% y-o-y previously) due to weaker-than-expected inflationary pressures in 1H19, coupled with initiatives by the government to deal with the issue of rising cost of living.

Source: Alliance Research - 26 Jun 2019