Thursday, 21 July 2011

Malaysia Economy: Inflation Rose in June on Higher Food Prices

Inflation sometimes give the economy bloom to nowhere
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Inflation at 3.5% in June
Inflation rose 3.5% YoY to 103.2 during the month of June broadly within ours of 3.1% and
consensus of 3.6% respectively. The annual increase was mainly driven by the Food & Non
alcoholic beverages which rose by 4.7%; while the transport segment experienced price
increase of 5.8% YoY during the month. Sequentially, prices rose by 0.3% mostly led by the
Food & Non alcoholic beverages which advanced by 0.7%. Elsewhere, the electricity tariff
increase had posted a marginal upside pressure to the sub‐component of Housing, Water,
Electricity, Gas & Other Fuels which increased by 0.1% MoM (or +1.9% YoY). Note that overall
prices grew by 3.3% YoY (or +0.3% MoM) in the preceding month.

YTD inflation at 3.0%
To date, headline inflation increased by an average 3.0% to 102.5 points. The increase in the CPI
was due to the increases observed in the indices of all the main groups except those of Clothing
& Footwear (‐0.4%) and Communication (‐0.1%). The index for Food & Non‐Alcoholic
Beverages and Non‐Food increased by 4.5% and 2.4% respectively.

Upside potential for Ringgit to limit inflationary risk
Among factors that could potentially limit the upside risk to prices includes the relatively strong
Ringgit following the uncertainties in the US and Euro region and also the stable world crude oil
price currently. To date June 2011, Ringgit had advanced a modest 2.1% against USD. Note that
the Ringgit closed strongly at RM3.00 per USD yesterday. World crude oil on the other hand
settled at USD98.41 per barrel yesterday. We maintain our Ringgit projection at RM2.80 per USD
given the firm economic fundamentals, further interest rate increase and also the continued
inflow of funds.

Source: TA

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