The factory-gate inflation fell in November by 2.9% to bring the first 11 months of 2018 average to -0.9%y/y due to cooling domestic demand for raw materials and ebbing manufacturing activity, underscoring rising economic pressure coming from external challenges and also to some extent, domestic pressures.

With the PPI figures expected to remain under negative growth pressure at least in the early months of 2019, we foresee limited upside on headline consumer inflation. For 2018, we project the headline consumer inflation to hover around 1.1% y/y and 1.5% y/y in 2019. Hence, we reiterate our view that the OPR in 2019 will remain at 3.25%.

• The Producer Price Index (PPI) fell 2.9% y/y in November from +0.7%y/y in October dragged by agriculture, forestry & fishing (-22.7% y/y), manufacturing (-1.8% y/y) and water supply (-0.1% y/y). But the drag on the PPI was softened by the gain from mining and electricity (+4.5% y/y) and gas supply (+1.2% y/y).

• Looking at the various stages of processing, the sub components of the PPI registered declines across the board. Crude materials, intermediate materials and finished goods all fell in November at -6.9%y/y, -1.5% y/y, and -2.6% y/y, respectively.

• The factory-gate inflation registered a -0.9% y/y average for the first 11 months of 2018 due to cooling domestic demand for raw materials and ebbing manufacturing activity, underscoring rising economic pressure coming from external challenges and also to some extend domestic pressures.

• Hence, we expect the PPI figures to remain under negative growth pressure at least in the early months of 2019. On that note, we foresee headline consumer inflation to hover around 1.1% y/y in 2018 and 1.5% y/y in 2019. Thus, we reiterate our view that the OPR in 2019 will remain at 3.25%.

Source: AmInvest Research - 2 Jan 2019