PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 27 Nov 2020, 11:04 AM


Economic Update - September 2020 CPI - Remains Tepid

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The Consumer Price Index (CPI) remained sluggish in September, weighed by weak petrol prices and cautious consumer sentiment. CPI for September that decreased by 1.4% YoY (August: -1.4%) was caused by the steep drop in pump prices amid the COVID-19 pandemic that hurt demand and hampered oil prices. The yet-to-abate COVID-19 situation has also hurt consumer sentiment. This is further reflected in muted CPI ex-fuel that barely stayed positive for the month (September: +0.1%; August: +0.2%). Note that this indicator provides an assessment for all goods and services excluding Unleaded Petrol for RON95, RON97 and diesel. This indicator is therefore an appropriate benchmark to gauge consumer sentiment without taking into account the sensitivity of petrol consumption to headline index. Inflation that was tepid for the month was driven by a slowdown in general prices led by transport (September: -9.9%) and housing, water, electricity, gas and other fuels (September: -3.0%).

On a monthly basis, CPI was flat in September (August: 0.2%), predominantly due to a rise in restaurant and hotels (September: +0.2%). Core index, which excludes volatile items like transport and F&B, rose by +1.0% in September (August: +1.1%) and was led by miscellaneous goods and services (September: +2.7%) and communication (September: +1.6%). Seven (7) out of twelve (12) sub-components registered gains for the month led by miscellaneous goods and services (September: +2.7%) and food and communication (September: +1.6%).

Transport index remained uninspiring for the month (September: -9.9%; August: -9.9%) no thanks to weak global oil prices amid the serious COVID-19 conditions in advanced economies - AEs (i.e. US: 8.1m cases) and major economies (i.e. India: 7.6m cases). Note that global COVID-19 cases have surged past 40m with ~13m yet to recover – suggesting a high risk of transmission. Challenging global macroeconomic conditions have weighed on Brent crude that remained weak on a YoY basis (September: -17.5%). This resulted in petrol price slipping by 21.1% on a YoY basis (average) led by RON97 (-23.3%), diesel (-20.7%) and RON95 (-19.4%).

The Conditional Movement Control Order (CMCO) imposed in some parts of the country is a concern as that could escalate into a full lockdown if not handled well. This could hurt economic recovery more so when it involves important states like Selangor and Wilayah Persekutuan (Kuala Lumpur, Putrajaya) which is home to large industrial and economic areas. The elevated number of new daily COVID-19 cases is also a bane as that may push consumers to remain cautious and continue preserving capital. This may also push businesses to delay capacity expansion and job creation by extension, with negative ramifications on macroeconomic conditions.

This will be compounded by a longer-than-expected breakthrough in COVID-19 vaccine development amid the recent announcements in the halting of COVID19 clinical trials by Johnson & Johnson and Eli Lilly and Co. The yet-to-abate COVID-19 situation also means a longer recovery period for important sectors like aviation, travel and services which will hurt the supply side of the economy. The sticky unemployment level (August: +4.7%; 741k) and weak job market also suggest that demand for goods and services may be soft in the near term.


CPI may remain muted in the near term driven by the challenging COVID-19 situation which shows no sign of slowing down. Weak oil prices due to economic struggles in the AEs may also keep a lid on inflation. Economic uncertainties may also push consumers to be cautious in spending. Businesses, on the other hand, may resort to preserve capital - resulting in slow capital expenditures or worst, delays in expansion. This combination of factors is expected to take a toll on job creation and macroeconomic conditions which underpins our uninspiring inflation projection for the year.

Source: PublicInvest Research - 22 Oct 2020

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