The inflation rate
for the month
of June moderated
to 1.6% YoY, making
it the slowest
pace since June
2010. It was
below market expectation of 1.7%.
Prices of every component in the index grew at a slower pace and combined with
a higher base rate in 2011, led to an overall
more subdued pace.
The core inflation,
which excludes the food price index, slowed to 1.00% from
1.3%. For 1H12, the average inflation rate grew by 2.0% in comparison to 3.1%
in the same period a year ago.
Looking into further details, the food & beverages sub‐index
of the CPI increased by 2.9% YoY, a slightly slower pace from the previous month’s 3.0%.
On a month‐on‐month basis,
prices of food
& beverages increased by
0.6%. With no
reports of food
shortages in the region and no
festivities in the midst of the year, we do not think that food
prices will increase
by more than
0.2%, with the
increase due to higher
demands heading into
the Eid celebrations
in August. However, there
have been worrying
reports elsewhere. Even
with global food index
currently at low
levels (‐13.7% YoY,
lowest level seen since
2009), droughts plaguing
the United States
have led to very
poor corn harvests
(up to 40%
of the crop
according to the US
Dept. of
Agriculture), which will
in turn will
largely impact prices
of beef and poultry
as corn is
the main feedstock.
This will indirectly impact food
importers. But this
concern is still
premature as even
if such crises were
to rear its
head, it is
estimated that the
impact would only be
seen in 2013
when the impact
of the final
harvest could be seen. Until then, there is little point in being
alarmed.
Moving on the
second biggest component
of the CPI,
the housing, water, electricity
& other fuel
sub‐index eased to
1.5% YoY and compared
to the previous
month, there was
no price changes.
We have to now keep a close eye on this index as there is the
possibility of water shortages in the state of Selangor and Kuala Lumpur due to
demand for treated water outstripping capacity as mentioned by the state’s
water concessionaire Syabas.
We cannot be
certain how the issue will be addressed but as it is, we
remain on the cautious side as news develops.
The third biggest contributor the CPI, the transportation
index, grew at a slower pace of 0.1% YoY from 0.4% previously. Compared to the preceding month,
prices fell by
0.3%. We maintain
our belief that there will be little change in the
prices of fuel as we only assume that any form of subsidy cut on the RON 95
will not happen so close to a general
election or even
too soon afterwards.
As with subsidised forms of oil used in manufacturing
and construction, there is little to worry
‐ what
with WTI hovering
around the moderate
levels of US$90/b and Brent at
US$100/b. If anything, the impact will be just a small blip in the inflation
index.
Outlook
A low rate
of inflation is
burden lifted off
the shoulders of
central Source: Bloomberg,
Kenanga Research bankers, allowing monetary authorities to act as needed to
boost the economy. Such is
the case in
the USA and
Europe – with
potential further easing of policies and additional stimulus packages to
drive economies tethering on the brink of recession.
As with the case for Malaysia, a low inflation rate could
indicate a slowing economy. However, figures indicate that the domestic economy is
thriving despite the
situation in the
global arena. This
resilience allows Bank
Negara Malaysia to
retain its Overnight Policy Rate even though many of its
peers in neighbouring countries have done otherwise. At this juncture, we are
retaining our CPI forecast at 2.4% for the whole for 2012, on the expectation
of an inflationary spillover in 2H12 when we expect a global economic rebound,
at the very least – from our Asian compatriots.
Source: Kenanga
No comments:
Post a Comment