News

• Headline inflation increased to +4.3% yoy in September (Aug: +3.7% yoy), matching consensus estimate.

• The rise mainly emanated from faster growth in the transportation sub-sector due to higher monthly petrol prices and low base effect.

• On mom basis, CPI increased by +0.3% in September, a moderation after recording a large increase of +0.9% in the previous month. Core inflation remained steady in September (+2.4% yoy; Aug: +2.4% yoy).

Comments

• The increase in inflation reading was mainly on account of faster price growth in the transport category.

• Transportation inflation accelerated to +15.8% yoy (Aug: +11.7% yoy) due to higher pump prices, in line with the rise in global crude oil prices. In September, retail petrol prices advanced further. Average price of RON95 and RON97 was higher at RM2.19 and RM2.48 respectively (Aug: RM2.12 and RM2.39 for RON95 and RON97 respectively). This is in line with the rise in Brent crude oil prices (US$55.5/pb; Aug: US$51.9/pb). Of significance, transportation sub-sector contributed a substantial boost of +2.0 ppts to headline inflation.

• Food inflation edged higher to +4.6% yoy (Aug: +4.3% yoy). In particular, fruit inflation trended upwards (3.9% yoy; Aug: 3.2% yoy) while vegetable inflation rose (+4.8% yoy; Aug: +2.9% yoy). Meanwhile, oils and fats continued to see an increase of +39.6% yoy (Aug: +39.2% yoy) due to removal of cooking oil subsidy.

• Services inflation trended slightly higher to +2.7% yoy (Aug: +2.6% yoy), as the rise in housing/utilities and fuels rose at a faster pace of +2.4% yoy (Aug: +2.2% yoy), that offset the moderation in restaurant and hotels (+2.6% yoy; Aug: +2.8% yoy).

• Core inflation (DOSM) remained steady at +2.4% yoy. The rise in food and beverage inflation (+4.5% yoy; Aug: +4.3% yoy) offset the slower increase in health (+2.5% yoy; Aug: +2.7% yoy).

• The acceleration in September inflation was expected as the petrol prices rose during the month. In October, inflation is expected to moderate as oil prices have stabilized compared to September amid fading base effect.

• We expect domestic-demand inflation to be contained, consistent with stable core inflation and BNM’s assessment. Nevertheless, a prolonged period of robust exports may have positive spillover on domestic demand which could feed to a rise in core inflation.

• As we expect inflation to moderate from September high and oil prices to remain range-bound, we do not expect BNM to react to the temporary rise in headline inflation as it is driven by supply (commodity) factor. We maintain our forecast for BNM to stand pat in 2017.

Source: Hong Leong Investment Bank Research - 23 Oct 2017