midf sisma

24 March 2017

ECONOMIC REVIEW | February 2017 Consumer Price Index Headline Inflation Hit 4.5% in February Signaling Upward Trend Ahead 

Inflation rate is slightly above our expectation. Headline inflation rate continues the upward trend by climbing to 4.5%yoy in February while core inflation rose to 2.5%. Retail pump price saw another 20 cents hike in February for both RON95 and RON97. As a result of the higher pump price, sub-item transport inflation rose by 17.9% and non-food inflation by 4.3%.



Slight hike in sugar price may affect food inflation in March. The slight increase in sugar price may translate into higher food inflation in March as sugar is used in our daily foods and drinks. Food and non-alcoholic beverages constitute about 30.2% of Malaysian household’s daily expenditure.



BNM most likely to stay put at current interest rate despite higher inflationary pressure. At current trajectory, we expect BNM to maintain the benchmark OPR at current level i.e 3.0% as the rise in inflation rate is mainly due to cost-driven factors rather than demand-push factors. We believe the central bank will keep interest rate unchanged for the year to keep an accommodative monetary policy.

Inflation rate is slightly above our expectation. Headline inflation rate continues the upward trend by climbing to 4.5%yoy in February while core inflation rose to 2.5%. Retail pump price saw another 20 cents hike in February for both RON95 and RON97. As a result of the higher pump price, sub-item transport inflation rose by 17.9% and non-food inflation by 4.3%. The rising trend is following a 3.2% inflation rate in January. Table 1: Consumer Price Indices

Indices

%MoM Nov-16

Dec-16

%YoY

Jan-17

Feb-17

Nov-16

Dec-16

Jan-17

Feb-17

CPI

1.0

0.0

1.1

1.3

1.8

1.8

3.2

4.5

Core CPI

0.5

0.1

0.1

0.4

2.2

2.1

2.3

2.5

Non Food

1.1

-0.4

1.2

1.4

1.0

1.0

2.9

4.6

1.0

0.6

0.9

0.9

3.8

3.7

4.0

4.3

0.0

-0.1

0.0

0.0

1.9

0.1

0.2

0.2

0.0

-0.1

0.0

0.2

-0.5

-0.5

-0.7

-0.2

0.5

0.0

0.0

0.7

2.1

2.1

1.9

2.2

0.1

0.1

0.4

0.4

1.4

1.4

1.5

1.5

Food and Non Alcoholic Beverages Alcoholic Beverages and Tobacco Clothing and Footwear Housing,Water,Electricity,Gas & Other Fuels Furnishings, Household Equipment and Maintenance Health

0.3

0.2

0.3

0.3

2.5

2.4

2.5

2.4

Transport

4.5

-1.4

5.9

5.5

-1.5

-0.6

8.3

17.9

Communication

-0.1

0.0

0.0

-0.1

-2.7

-2.6

-0.2

-0.3

Recreation and Culture

-0.2

0.1

0.1

0.4

3.2

3.3

3.2

3.1

Education

0.1

0.0

1.0

0.2

1.9

1.7

2.0

1.7

Restaurants and Hotels

0.1

0.2

0.3

0.6

1.9

1.9

2.1

2.3

Miscellaneous Goods and Services

0.5

-0.2

0.1

0.3

1.8

1.8

1.4

1.4

Durable Goods

0.2

-0.1

0.1

0.4

1.7

1.7

1.5

1.5

Semi Durable Goods

0.0

-0.1

0.0

0.1

-0.3

-0.4

-0.6

-0.3

Non Durable Goods

2.2

-0.1

2.4

2.4

1.4

1.6

4.6

7.9

Services

0.3

0.2

0.3

0.6

2.2

2.2

2.5

2.7

Source: Department of Statistics, Malaysia; MIDF Research

KINDLY REFER TO THE LAST PAGE OF THIS PUBLICATION FOR IMPORTANT DISCLOSURES

MIDF RESEARCH Friday, 24 March 2017

Slight hike in sugar price may affect food inflation in March. Due to depreciated Ringgit, retail domestic price of sugar rose by 11 cents to RM2.95 per kilogram. Back in 2013, import price of sugar was at US$0.15 per pound and recently the price is at US$0.21 per pound. The slight increase in sugar price may translate into higher food inflation in March as sugar is used in our daily foods and drinks. Food and non-alcoholic beverages constitute about 30.2% of Malaysian household’s daily expenditure. Therefore, higher food inflation will give significant impacts especially to those in low income group. Weekly retail oil price adjustment to take effect starting 29 March. Pump price stays at same level in March whereas diesel price rose by 5 cent. The price for RON95 now stood at RM2.30/litre while RON97 was set at RM2.60/litre and diesel at RM2.20/litre. Cumulatively, pump price has increased by 60 cents since September last year when RON95 price was at RM1.70/litre. April would see the first time pump prices to be adjusted on weekly basis. Prices will be announced every Wednesday and made effective the next day (Thursday). With the new system, there is a possibility for increased competition among local retail pump station but the real outcome will be only known when the mechanism is implemented. Based on global oil price and Ringgit movements in March, we anticipate RON95 price to be cut by 5 to 10 cents when the new price is announced by next week. Table 2: Changes in Top 20 Weightage Price Sub-Indices

Sub Indices

%MoM Nov-16

Dec-16

Housing Rental

0.7

0.0

Food Away From Home

0.4

Fuels & Lubricants for Transportation

%YoY Feb-17

Nov-16

Dec-16

0.0

0.9

2.5

2.5

2.5

2.9

0.3

0.7

0.9

3.4

3.5

3.6

4.1

8.0

-2.4

10.2

9.3

-4.4

-2.7

13.4

31.3

Telephone & Telefax Services

0.0

0.0

0.0

0.0

-2.7

-2.7

0.0

0.0

Electricity

0.0

0.0

0.0

0.0

1.3

1.3

0.0

0.0

Personal Care & Effects Products

0.4

-0.4

0.2

0.3

1.4

1.0

0.5

0.4

Fresh Fish

-0.1

1.3

3.3

0.7

4.4

4.5

5.9

4.2

Cigarettes

0.0

0.0

0.0

0.0

2.0

0.1

0.1

0.1

Expenses In Restaurants & Cafes

0.2

0.2

0.4

0.6

2.2

2.1

2.3

2.5

Garments

0.0

-0.1

0.0

0.1

-0.5

-0.5

-0.5

-0.3

Cultural Services

0.1

0.0

0.0

0.2

6.0

6.1

6.0

5.4

Fresh Meat

0.8

-0.3

2.6

2.6

7.1

3.0

1.5

5.0

Fresh Vegetables

4.7

5.3

-1.4

4.8

3.9

5.7

9.1

11.0

Transportation Repair & Maintenance

0.3

0.2

0.7

0.2

4.3

4.0

3.8

3.4

Bread & Bakery Products

0.1

0.1

0.3

0.2

1.6

1.6

1.6

1.6

Purchase of Motorcars

0.0

-0.1

0.4

0.0

2.3

1.9

1.7

1.0

Rice

0.0

0.0

-0.1

0.1

1.0

0.6

0.4

0.5

-1.0

2.0

2.7

0.0

4.8

8.7

7.6

5.6

Other Transportation Services (Including Toll)

0.0

0.1

0.0

0.6

5.4

5.5

5.5

6.2

Insurance for Motor Vehicles

0.0

0.1

0.1

-0.1

1.1

1.3

1.3

1.2

Fresh Seafood

Jan-17

Jan-17

Feb-17

Source: Department of Statistics, Malaysia; MIDF Research

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MIDF RESEARCH Friday, 24 March 2017

Most economies are on inflationary mood. US strongly registered inflation rate above inflation-target range of 2%. US inflation rate in February rose higher than previous month to 2.7%. In line with the March Fed’s rate hike, US economy is reflecting modest pace of recovery. Most economies registered inflation rate in February higher than January’s record. Despite of market uncertainties, EU’s inflation rose to 2.0% in February and all Asean economies recorded stronger inflation rate for the month except for Thailand which only grew at 1.4%. Overall, the rise in inflation rate across all economies signal improving global demand and partly due to positive progress in global commodities prices. We expect the upward trend will remain at gradual pace until the end of the year. Table 3: Global Headline Inflation Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Malaysia

1.6

1.1

1.5

1.5

1.4

1.8

1.8

3.2

4.5

Indonesia

3.5

3.2

2.8

3.1

3.3

3.6

3.0

3.5

3.8

Philippines

1.9

1.9

1.8

2.3

2.3

2.5

2.6

2.7

3.3

Thailand

0.4

0.1

0.3

0.4

0.3

0.6

1.1

1.6

1.4

-0.7

-0.6

-0.3

-0.2

-0.3

0.0

0.2

0.6

0.9

United States

1.0

0.9

1.1

1.5

1.6

1.7

2.1

2.5

2.8

China

1.9

1.8

1.3

1.9

2.1

2.3

2.1

2.5

0.8

EU

0.1

0.2

0.3

0.4

0.5

0.6

1.2

1.7

1.9

-0.4

-0.4

-0.5

-0.4

0.1

0.5

0.3

0.5

Singapore

Japan

Source: Department of Statistics, Malaysia; MIDF Research

BNM most likely to stay put at current interest rate despite higher inflationary pressure. At current trajectory, we expect BNM to maintain the benchmark OPR at current level i.e 3.0% as the rise in inflation rate is mainly due to cost-driven factors rather than demand-push factors. We believe the central bank will keep interest rate unchanged for the year. We have revised our inflation forecast to 4.5% from 2.8% previously, reflecting the rather steep increase in pump price in the past 7 months.

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MIDF RESEARCH Friday, 24 March 2017

Chart 1: CPI vs CPI Ex-Fuel

Chart 2: Food Price Index vs Services Price Index

5.0%

4.5%

4.5%

7.0% 6.0%

4.0% 3.5%

4.5%

5.0%

3.0% 2.5%

2.6%

2.0%

4.0% 3.0%

1.5% 1.0%

2.0%

0.5%

2.7%

1.0%

0.0%

0.0%

Consumer Price Index

CPI Ex-Fuel

CPI: Food

CPI: Services

Source: Department of Statistics, Malaysia; MIDF Research

Source: Department of Statistics, Malaysia; MIDF Research

Chart 3: CPI vs PCE Inflation

Chart 4: PPI Local vs PPI Imports

4.0% 3.2%

3.5% 3.0% 2.5%

20.0%

5.0%

15.0%

4.0%

10.0%

3.0%

5.0%

2.0%

0.0%

1.0%

-5.0%

0.0%

-10.0%

-1.0%

-15.0%

-2.0%

2.0% 1.5% 1.0%

1.2%

0.5% 0.0% 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 Consumer Price Index

PCE Inflation PPI For Local Production

Source: Department of Statistics, Malaysia; MIDF Research

Chart 5: Imports Price Index vs Export Price Index

Chart 6: RON95 vs MIDFR Estimate

10.0%

8.0%

8.0%

6.0% 4.0%

6.0%

3.50 3.00

0.0%

2.0%

-2.0% -4.0% -6.0%

-2.0%

-8.0%

-4.0%

-10.0%

Import Price Index (ImPI)

RON95 RON95 Model

2.0%

4.0%

0.0%

PPI For Imports - RHS

Source: Department of Statistics, Malaysia; MIDF Research

2.50 2.00 1.50 1.00

Export Unit Value Index (EUVI): Total

Source: Department of Statistics, Malaysia; MIDF Research

Source: Department of Statistics, Malaysia; MIDF Research

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MIDF RESEARCH Friday, 24 March 2017

MIDF RESEARCH is part of MIDF Amanah Investment Bank Berhad (23878 - X). (Bank Pelaburan) (A Participating Organisation of Bursa Malaysia Securities Berhad)

DISCLOSURES AND DISCLAIMER

This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for distribution only under such circumstances as may be permitted by applicable law. Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of the information contained therein and it should not be relied upon as such. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The research analysts will initiate, update and cease coverage solely at the discretion of MIDF AMANAH INVESTMENT BANK BERHAD. The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may have interest in any of the securities mentioned and may benefit from the information herein. Members of the MIDF Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein This document may not be reproduced, distributed or published in any form or for any purpose.

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