August’s headline inflation of 1.5% y/y fell within expectation while core inflation remained unchanged at 2.0% y/y for the fifth straight month. While inflation was driven by food & non-alcoholic beverages, the upside to inflation was capped by the drop in transportation prices due to the drop in pump prices.

The latest data indicates that the current level of economic activity remains insufficient to spur inflation, with average headline inflation at 0.5% y/y for the first eight months. Core inflation for the same period is at 1.0%. With inflation pressure expected to remain tame as we move ahead, our full-year inflation is projected at between 0.8% and 0.9%. We expect a 25bps OPR cut in November, given the challenges to growth on both the domestic and external fronts

• The slight rise in August’s headline inflation by 1.5% y/y fell in line with expectation after posting 1.4% y/y in July. Meanwhile, core inflation (minus fresh food and administered prices of goods and services) grew at the same pace as in July by 2.0% y/y. On a month-on-month basis, headline inflation rose 0.2% m/m while core inflation 0.3% m/m from 0.1% m/m and 0.1% m/m respectively in July.

• Drivers for August inflation is the food & non-alcoholic beverage prices which rose 2.6% y/y in August from 2.4% y/y in July. Details showed the higher food prices came from eggs (+8.1% y/y from 5.0% y/y in July) and meat (+0.6% y/y in August from -1.7% y/y in July). On the non-alcoholic beverage segment, mineral water, soft drinks & juice prices climbed by 3.3% y/y from 2.9% y/y in July from the impact of the sugar tax introduced on soft drinks & juices at 40 sen per litre.

• Meanwhile transportation prices fell by 2.1% y/y in August from -1.9% y/y in July dragged by the 5.2% y/y drop in pump prices from -4.8% y/y in July. Both RON95 and diesel prices remained at RM2.08/litre and RM2.80/litre, respectively. But when compared annually, in August RON95 fell 5.5% y/y while diesel price remained unchanged for the fifth straight month. RON97 dropped 4.8% y/y to RM2.51/litre in August from +0.4% y/y to RM2.57/litre in July.

• The latest data indicates the current level of economic activity remains insufficient to spur inflation, with average headline inflation at 0.5% y/y for the first eight months. Core inflation for the same period is at 1.0%. With inflation pressure expected to remain tame as we move ahead, our full-year inflation is projected at between 0.8% and 0.9%. We expect a 25bps OPR cut in November, given the challenges to growth on both the domestic and external fronts.

Source: AmInvest Research - 26 Sept 2019