Although inflation rose slightly in October by 0.6% y/y, it remained below the 1% level for the fifth consecutive year. Likewise, core inflation picked up slightly, up 0.4% y/y in October. Hence, we revise our headline inflation projection downwards to 1.1% in 2018 from 1.5%

For 2019, we expect inflation to pick up as the impact of consumption tax and targeted fuel subsidy gradually kicks in. We project inflation to hover around 1.8 %y/y. On that note, we foresee some room for BNM to raise rates in 2H2019 by 25bps to normalise at 3.50%.

• Headline inflation continued to stay below the 1% level for the fifth consecutive month. October’s headline inflation was at 0.6%y/y from 0.3% y/y in September. This brings the YTD average to 1.1% y/y. Meanwhile, core inflation rose slightly by 0.4% y/y in October from 0.3% y/y in September.

• Food prices rose in October by 1.2 % y/y from 0.5% y/y in September, which allowed inflation to pick up. The transport segment, on the other hand, edged up 0.8 y/y in October from 0.3% y/y in September while housing and utilities climbed 2.1% y/y in October, same as in the month prior.

• Hence, we revise our headline inflation projection downwards to 1.1% in 2018 from 1.5% previously as underlying inflation remains weak with the support of the SST which is keeping the overall price pressure contained, added with the fuel subsidy for RON95.

• For 2019, we expect inflation to pick up as the impact of consumption tax and targeted fuel subsidy gradually kicks in. We project inflation to hover around 1.8 % y/y. On that note, we foresee some room for BNM to raise rates in 2H2019 by 25bps to normalise at 3.50%

Source: AmInvest Research - 26 Nov 2018