After four consecutive months of inflation growing below 4%, it rose 4.3% y/y in September which is close to April’s reading of 4.4% y/y. Higher fuel prices is believed to be the main factor. Meanwhile, core inflation, which excludes prices of fresh food and administered prices, remained stable at 2.4% for the second straight month. The higher inflation in September came from both food (+4.6% y/y) and non-food (+4.2% y/y) sectors.

We expect the full-year inflation to be around 3.7% which is closer to the higher range set by BNM at 3% – 4%. Pressure will continue to come from retail fuel prices given firmer global oil prices, and the low base. Thus we, expect October’s inflation to be around 4% y/y.

Our base case suggests that the OPR will stay put at 3.00% for 2017, while we continue to maintain our 45% chance for a rate hike in November by 25bps. Stronger inflation numbers and macro data which point to another round of better-than-expected GDP growth plus a pickup in core CPI will open the door sooner for a rate hike.

• After four consecutive months of inflation growing below 4%, it rose 4.3% y/y in September from3.7% y/y in August. September’s inflation reading is close to April’s reading of 4.4% y/y.

• Transportation cost for September rose 15.8% y/y versus 11.7% y/y in August due to higher petrol and diesel prices. On average we saw RON95, RON97 and diesel prices rose around RM2.19/litre, RM2.48/litre and RM2.08/litre respectively in September versus RM2.12/litre, RM2.39/litre and RM2.04/litre respectively in August.

• We found both the food and non-food prices were higher in September. The former gained by 4.6% y/y in September versus 4.3% y/y in August while the latter climbed 4.2% y/y in September against 3.4% y/y in August.

Meanwhile, core inflation, which excludes prices of fresh food and administered prices, remained stable at 2.4% for the second straight month.

• We expect the full-year inflation to be around 3.7% which is closer to the higher range set by BNM at 3% – 4%. Pressure will continue to come from retail fuel prices (which make up 7.8% of the CPI weight) given firmer global oil prices, and the low base. Thus we expect October’s inflation to be around 4% y/y.

• Our base case suggests that the OPR will stay put at 3.00% for 2017, while we continue to maintain our 45% chance for a rate hike in November by 25bps. Stronger inflation numbers and macro data which point to another round of better-thanexpected GDP growth plus a pickup in core CPI will open the door sooner for a rate hike by 25bps

Source: AmInvest Research - 23 Oct 2017