Headline inflation sustained at +1.1% YoY in October (Sep: +1.1% YoY), slightly exceeding the consensus estimate of +1.0% YoY. The index was mainly supported by stable growth in housing, utilities & other fuels and rebound in communication which offset moderation in food & beverages and continued decline in transport. We maintain our expectation for headline inflation to average +0.7% YoY in 2019 (2018: +1.0% YoY).

DATA HIGHLIGHTS

Headline inflation was steady at +1.1% YoY in October (Sep: +1.1% YoY), slightly higher than consensus estimate of +1.0% YoY. Meanwhile, on a monthly basis, CPI picked up by +0.2% (Sep: 0%).

CPI growth was supported by stable housing, utilities & other fuels (+1.6% YoY; Sep: +1.6% YoY) and rebound in communication (+1.5% YoY; Sep: -0.1% YoY) which offset moderation in most index groups including food & non-alcoholic beverages (+1.8% YoY; Sep: +2.2% YoY), alcoholic beverages & tobacco (+2.2% YoY; Sep: +2.4% YoY), furnishings, household equipment & maintenance (+1.7% YoY; Sep: +2.1% YoY), restaurants & hotels (+1.2% YoY; Sep: +1.4% YoY) and miscellaneous goods & services (+2.2% YoY; Sep: +2.7% YoY), as well as steeper decline in clothing & footwear (-1.3% YoY; Sep: -0.9% YoY) and transport (-2.3% YoY; Sep: - 2.2% YoY).

The transport sector continued to decline (-2.3% YoY; Sep 19: -2.2% YoY) as RON95 petrol price remained lower at RM2.08/litre compared to the same period in 2018 (Oct 18: RM2.20). On a monthly basis, the transport sector grew by +0.2% (Sep 19: +0.1%), driven by the increase in RON97 petrol price during the month (RM2.64; Sep 19: RM2.60) due to higher refined petrol price (USD76.71/pb; Sep: USD72.29/pb).

Food inflation eased to +1.8% YoY (Sep: +2.2% YoY) as both ‘food at home’ (+1.8% YoY; Sep: +2.2% YoY) and ‘food away from home’ moderated (+2.9% YoY; Sep: 3.2%). The moderation was largely due to moderation in fish & seafood (1.4% YoY; Sep: 1.6% YoY), rice bread and other cereals (+0.5% YoY; Sep: +0.7% YoY) and decline in meat (-0.2% YoY; Sep: +2.0% YoY). On the global front, food inflation surged by +6.0% YoY (Sep: +3.2% YoY) due to increase in cereal & sugar.

Services sector was stable at +1.9% YoY (Sep: +1.9% YoY). Growth was supported by pickup in education (+1.9% YoY; Sep: +1.8% YoY) and rebound in communication (+1.5% YoY; Sep: -0.1% YoY) driven by telephone & telefax services. This was offset by softer growth in recreation services & culture (+0.7% YoY; Sep: +0.8% YoY), restaurants & hotels (+1.2% YoY; Sep: +1.4% YoY) and miscellaneous goods & services (+2.2% YoY; Sep: +2.7% YoY).

Core inflation (DOSM) eased to +1.4% YoY (Sep: +1.5% YoY) on account of continued decline in clothing & footwear (-1.3% YoY; Sep: -0.9% YoY), transport (- 2.3% YoY; Sep: -2.2% YoY) and moderation in food & non-alcoholic beverages (+2.1% YoY; Sep: +2.4% YoY).

HLIB’s VIEW

Inflation was lower in Jan-Oct 2019 (+0.6% YoY) compared to the same period (Jan Oct 2018: +1.1% YoY) due negative contribution from transport sector. We maintain our expectation for headline inflation to average +0.7% YoY in 2019 (2018: +1.0% YoY) as RON95 petrol price is expected to remain constant at RM2.08/litre until the end of the year.

Source: Hong Leong Investment Bank Research - 21 Nov 2019