PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 23 Oct 2020, 9:35 AM


August 2020 CPI - Sluggish, Courtesy of Oil Price

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The Consumer Price Index (CPI) was sluggish in August driven by weak petrol prices and uncertain economic outlook. CPI for August that declined by 1.4% YoY (July: -1.3%) was weighed by the drop in in pump prices amid volatile global oil prices. The challenging COVID-19 situation also hurt consumer sentiment. This is further reflected in a positive CPI ex-fuel that remained steady for the month (August: +0.2%; July: +0.2%). Note that this indicator covers all goods and services except Unleaded Petrol for RON95, RON97 and diesel. This is therefore an appropriate benchmark to gauge consumers’ sentiment without taking into account the sensitivity of petrol consumption to headline index. Inflation that was lackluster for the month was nonetheless driven by a slowdown in general prices led by transport (August: -9.9%) and housing, water, electricity, gas and other fuels (August: -3.0%).

Extension of the Recovery Movement Control Order (RMCO) until year-end is not expected to affect economic activity given that the government has allowed the re-opening of almost all economic sectors with the exception of entertainment-related sector. The prevailing cautious consumer sentiment may continue however amid a steady rise in new COVID-19 cases which could escalate into a more serious situation if not contained well. Though a full lockdown is unlikely, a targeted Enhanced Movement Control Order (EMCO) could be equally detrimental to economic activity especially if it involves a major city or industrial area. This uncertain situation may push consumers to remain cautious and preserve capital as a result. This may also push businesses to delay capacity expansion and job creation, by extension, with negative ramifications on macroeconomic conditions.

On a monthly basis, CPI that rose +0.2% in August (July: 0.7%) was predominantly underpinned by a rise in the transport index (August: +0.4%). Core index, which excludes volatile items like transport and F&B, rose by +1.1% in August (July: +1.2%) and was led by miscellaneous goods and services (August: +3.1%) and communication (August: +1.6%). Eight (8) out of twelve (12) sub-components registered gains for the month headed by miscellaneous goods and services (August: +3.1%) and food and communication (August: +1.6%)

Transport index remained lethargic for the month (August: -9.9%; July: -10.3%; June: -14.3%, May: -20.8%) no thanks to weak global oil prices amid the worsening COVID-19 situation in advanced economies - AEs (i.e. US; Germany) and major economies (i.e. India). Note that new global COVID-19 cases have surged past 30m with ~10m yet to recover – suggesting a high risk of transmission that may spill into 2021. The challenging global macroeconomic conditions have weighed on Brent crude that remained weak on a YoY basis (August: -25.0%). This resulted in petrol price slipping by 19.2% on a YoY basis (average) led by RON97 (-21.1%), RON95 (-19.3%) and diesel (-17.1%).


CPI may remain benign in the near term no thanks to negative news flow on COVID-19 which shows no sign of slowing down. Limited upside on oil prices amid economic struggles especially in the AEs may also keep a lid on inflation. Economic uncertainties may push consumers to be cautious in spending. Capital preservation may also hit businesses - resulting in slow capital expenditures or worst, delays in expansion. This is expected to take a toll on job creation and macroeconomic conditions. This challenging situation may persist until there is a slowdown in the speed of COVID-19 transmission or should there be a successful breakthrough for a vaccine. Note that the speed COVID-19 transmission is worrying as the new global cases are rising by 1m a month.

Source: PublicInvest Research - 24 Sept 2020

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