-  Malaysia’s Consumer Price Index (CPI) had registered a growth of 3.3% YoY in August, compared to 3.2% in July.

-  During the month, core inflation grew by 3.3% YoY in August vs. +3.2% in July.

-  Meanwhile, the cost component of Food and Non-alcoholic Beverages had increased by 3.3% YoY (July: +3.1% YoY).

-  On a YTD basis, inflation grew by 3.3% YoY as at end-August. That compares to the corresponding period of last year when inflation had advanced at a moderate pace of 1.7% YTD.

-  The price increase as at YTD 2014 was mainly driven by the Food and Non-alcoholic Beverages (+3.6% YoY) and Transport (+5.4% YoY).

-  As a recap, inflation soared to 3.5% in February 2014, which was the highest inflation rate recorded for the year.

-  Without further price rationalisation in the months ahead, we expect headline inflation to slow down drastically from September 2014 until March 2015, prior to the implementation of GST.

-  Headline inflation will probably register a moderated growth of 2.5% in September 2014 compared to +2.6% seen during the corresponding period of last year.

-  Owing to the higher base of last year, the transport index of CPI is likely to moderate to +0.7% in September 2014 vs. +5.5% YoY in August 2014.

-  Note that the transport index soared by 4.6% YoY in September 2013 when petrol pump prices were adjusted higher (August 2013: +0.6% YoY).

-  That said, BNM is expected to retain interest rate at 3.25% during the Monetary Policy Committee (MPC) meeting today. In part, inflation rate had probably moderated in September.

-  Also, we believe that the rate hike in July coupled with other macro prudential measures by BNM will continue to have a moderating impact on household indebtedness while ensuring that the financial imbalances are in check.

-  Full-year inflation could potentially register a growth of 2.9% in 2014, should prices remain benign in 4Q14.

-  However, assuming that the government raises petrol pump prices by 30 sen per litre effective October/ November/ December, full-year inflation for 2014 is likely to register a growth of 3.2%/ 3.1%/ 3.0% respectively.

-  Meanwhile, consumer prices are expected to escalate next year, especially from April 2015 onwards when GST takes effect.

Source: AmeSecurities