PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 22 Jan 2021, 10:40 AM


October 2020 CPI - Weak Demand Weighs

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The Consumer Price Index (CPI) remained uninspiring in October, dampened by double digit drops in petrol prices. This was further exacerbated by cautious consumer sentiment following post the 6-month automatic loan moratorium at the end of September. CPI for October decreased 1.5% YoY (September: - 1.4%). The on-going COVID-19 situation remains a bane to consumer sentiment, reflected in the muted CPI ex-fuel reading that has stayed mildly positive for the month (October: +0.1%; September: +0.1%). Note that this indicator provides an assessment for all goods and services excluding Unleaded Petrol for RON95, RON97 and diesel, therefore an appropriate benchmark to gauge consumer sentiment without taking into account the sensitivity of petrol consumption. Inflation that was muted for the month continued to be held back by a slowdown in general prices led by transport (October: -10.2%) and housing, water, electricity, gas and other fuels (October: -3.0%).

On a monthly basis, CPI ticked 0.1% faster in October (September: +0.2%), pushed by a jump in the F&B sub-index (October: +0.1%). Core index, which excludes volatile items like transport and F&B, rose by +0.8% in October (September: +1.0%) and was led by miscellaneous goods and services (October: +2.8%) and F&B (October: +1.3%). Nine (9) out of twelve (12) subcomponents registered gains for the month led by miscellaneous goods and services (October: +2.8%) and F&B (October: +1.3%).

Transport index remained sluggish for the month (October: -10.2%; September: -9.9%), no thanks to weak global oil prices amid serious global COVID-19 situation in advanced and major economies (US: 13.0m cases; India: 9.1m cases; Brazil: 6.1m cases; France: 2.1m cases; Germany: 1m cases). Global COVID-19 cases have surged past 60m, an addition of 20m per month with 19m (32%) 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 (October: -37.8%). Pump prices slipped by 22.1% on a YoY basis (average) as a result, led by RON97 (-25.6%), diesel (-21.2%) and RON95 (-19.5%).

The Conditional Movement Control Order (CMCO) is some parts of the country remains a concern, with the specter of a full lockdown especially in key states like Selangor and Kuala Lumpur which are reporting extraordinarily sharp rises in new Covid-19 cases particularly worrying. Though cases in Selangor are being contributed by 1 major cluster (e.g. Teratai) and remains under control, risks of transmission into the community remains a high possibility. To prevent the situation from worsening especially with the upcoming holiday season in December, the CMCO may likely be extended until the end of December and which could weigh further on consumer sentiment.


CPI is expected to rebound in 2021 on account of the global economic recovery, a turnaround in oil price and the favourable base effect. This will be further boosted by a recovery in consumer sentiment thanks to recent breakthroughs in the COVID-19 vaccine development. Business sentiment should also rebound, underpinning job creation and the expected improvement in the labour market. Downside risks remain however should cost of the COVID-19 vaccine be prohibitive, and potentially triggering an uneven global recovery. Selective allocation of the vaccine, perhaps favouring certain regions, is also negative for global recovery.

Source: PublicInvest Research - 26 Nov 2020

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