Headline inflation saw a slight pickup of +1.5% YoY in August (Jul: +1.4% YoY), matching the consensus estimate. The increase in headline inflation was mainly driven by higher food & beverage prices which offset moderation in prices of housing, utilities & other fuels and furnishings, household equipment & maintenance.

DATA HIGHLIGHTS

Headline inflation slightly picked up by +1.5% YoY in August (Jul: +1.4% YoY), in line with the consensus estimate. On a monthly basis, CPI picked up by +0.2% (Jul: +0.1%), driven by higher prices of housing, utilities & other fuels (+0.5%; Jul: 0.0%).

The rise in food & non-alcoholic beverages (+2.6% YoY; Jul: +2.4% YoY) and alcoholic beverages & tobacco (+2.5% YoY; Jul: +2.3% YoY) contributed to the slightly higher inflation rate, offsetting the moderation in housing, utilities & other fuels (+1.8% YoY; Jul: +1.9% YoY), furnishings, household equipment & maintenance (+3.2% YoY; Jul: +3.3% YoY) and decline in transport (-2.1% YoY; Jul: -1.9% YoY) and clothing & footwear (-1.1% YoY; Jul: -1.1% YoY).

In the transport sector, price levels declined at a faster pace (-2.1% YoY; Jul: -1.9% YoY) with the petrol price cap still in place for RON95 petrol (Aug 19: RM2.08; Aug 18: RM2.20). On a monthly basis, transport prices also declined (-0.1%; Jul: +0.2%) due to the fall in RON97 petrol price (RM2.51; Jul: RM2.56), consistent with lower global Brent oil price during the month (USD59.50; Jul: USD64.21).

Food inflation continued to rise by +2.6% YoY (Jul: +2.4% YoY), driven by rebound in meat prices (+0.6% YoY; Jul: -1.6% YoY) and increase in fish & seafood (+0.9% YoY; Jul: +0.4% YoY) as well as milk & eggs prices (+3.4% YoY; Jul: +2.6% YoY). This offset the moderation in fruits (+1.7% YoY; Jul: +2.5% YoY) and vegetables prices (+3.2% YoY; Jul: +4.7% YoY). Meanwhile, on the global front, the growth in food prices moderated to +1.1% YoY (Jul: +2.8% YoY).

In the services sector, inflation eased slightly to +2.6% YoY (Jul: +2.7% YoY) on the back of marginal moderation in recreation services & culture (+2.3% YoY; Jul: +2.4% YoY) which offset the pickup in health (+1.4% YoY; Jul: +1.3% YoY) and communication services (+2.2% YoY; Jul: +2.1% YoY). Growth in education and restaurants & hotels were sustained at +1.4% YoY (Jul: +1.4% YoY) and +1.7% YoY (Jul: +1.7% YoY) respectively.

Meanwhile, core inflation (DOSM) held at +2.0% YoY (Jul: +2.0% YoY), supported by rise in health (+1.4% YoY; Jul: +1.3% YoY) and communication services (+2.2% YoY; Jul: +2.1% YoY). This offset the moderation in housing, utilities & other fuels (+1.9% YoY; Jul: +2.1% YoY), furnishings, household equipment & maintenance (+3.2% YoY; Jul: +3.3% YoY), recreation services & culture (+2.3% YoY; Jul: +2.4% YoY) and faster decline in transport (-2.1% YoY; Jul: -1.9% YoY).

HLIB’s VIEW

Inflation is expected to remain broadly stable for the rest of 2019, pending the timing of the implementation of targeted petrol subsidy scheme. The fuel subsidy was initially supposed to be announced earlier, but the final announcement has been delayed. Since then, reports state that subsidies in the form of cash will be given directly to B40 household who are enlisted for the Bantuan Sara Hidup (BSH) scheme. On OPR, we maintain our expectation for BNM to have an easing bias and reduce the OPR by 25bps within the next six months.

Source: Hong Leong Investment Bank Research - 26 Sept 2019