-  Malaysia’s Consumer Price Index (CPI) grew by 2.0% YoY in July (June: 1.8%), which was broadly in line with both ours and consensus growth expectations of 1.9% and 2.0% respectively.

-  Specifically, core inflation advanced by 1.2% YoY in Julywhich was the same level recorded in June. Meanwhile, the cost component of Food and Non-alcoholic Beverages, which accountedfor 30.3% of the CPI, had registeredhigher growth of 3.9% YoY (June: +3.2%).

-  On a YTD basis, inflation had increased by a modest 1.7%. Basically, prices of the non-food segment rose by 1.0% YTD while cost component of food and non-alcoholic beverages advanced by 3.4%.

-  On the domestic front, prices continue to stay in check owing toongoing subsidiesand subdued cost pressure. There has been no indication of a subsidies cut as of YTD August 2013.

-  Inflation growth in 2013 will remain modest while upside price pressure remains limited at this juncture. Even if subsidies are lowered in the final months of 2013, we expect a limited impact to overall CPI for 2013.

-  Separately, the producer price index suggests that cost of production had fallen through the last thirteen months to June. In June, the producer prices fell by 2.7% YoY (May: -4.6% YoY).

-  Meanwhile, higher cost pressure stemming from rising global commodity prices recently could potentially inflate global prices going forward. World crude oil price rose by 14.1% YTD to USD104.75per barrel by the end of yesterday.

-  On the back of weaker-than-expected price pressure as of YTD, we are taking this opportunity to revise downward our full year CPI growth assumption for 2013 to 2.0%, which is -0.5ppt from our earlier projection.

-  As for the OPR, we hold that interest rate is likely to be retained at 3.0% for the rest of 2013 in tandem with growth prospects and inflation expectations ahead. The upcoming Monetary Policy Committee meeting will be held on September 5^th.

Source: AmeSecurities