AmWatch - Economic Update : Inflation grew at a modest pace of 1.8% in April despite GST, 25 May 2015

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Economic Update : Inflation grew at a modest pace of 1.8% in April despite GST

Malaysia’s Consumer Price Index (CPI) grew by 1.8% YoY in April (March: +0.9%), driven by both the non-food and food segments of CPI. Core inflation advanced by 1.2% YoY, compared to 0.3% YoY in March. However, the price increase for food and non-alcoholic beverages was 3.1% in April (vs. +2.3% in March).

Meanwhile, transport cost remains relatively low in April as petrol pump prices remained the same compared to the preceding month. Transport index had registered a contraction of 4.8% YoY (vs. -4.9% in March). In March, RON 95 petrol remained at RM1.95 a litre, RON 97 petrol at RM2.25 a litre, and diesel at RM1.95 a litre – unchanged from the previous month.

As for May, prices are expected to remain in check. Inflation rate is likely to advance by 1.8% in May. Note that the petrol pump prices stayed at the same level since March 2015. For the remaining of 2015, we envisage underlying inflation to be fairly stable on the back of subdued demand conditions and moderate cost pressure. As for now, we maintain our inflation projection of 2.9% for 2015 (vs. 3.2% in 2014), pending further updates ahead.

That said, Malaysia is likely to maintain an accommodative monetary policy and the key rate will probably be retained for the rest of 2015. Our year-end target for the OPR is 3.25%, which is unchanged compared to that for year-end 2014. The upcoming Monetary Policy Committee (MPC) meeting is on 9 July.

On the back of the low risk of inflation, positive real interest rate has been prevalent since September 2014. Nonetheless, real interest rate had reduced to 1.45% in April from 2.35% in March. Elsewhere, the reserves at BNM gained 0.4% from end-April to USD106.2bil in mid-May, on the back of the strong Ringgit. The reserves position is sufficient to finance 8.0 months of retained imports and is 1.1 times the short-term external debt.

Others :

Pos Malaysia : FY15 Results: Slower than expected Mail, but Courier remains in overdrive             HOLD

AMMB Holdings : FY15 net earnings above expectations               NON-RATED

QUICK TAKE

Plantation Sector : Newsflow for week 18 to 22 May       OVERWEIGHT

NEWS HIGHLIGHTS

Tan Chong Motor Holdings : Opens its largest sales, service and spare parts centre

Construction Sector : RM10bil MRT tunnelling job, tender to start this week,

Telecommunications Sector : Stiffer penalties for telcos and and broadcasting industries

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