Headline inflation moderated to +0.9% YoY in November (Oct: +1.1% YoY), less than the consensus estimate of +1.1% YoY. The softer growth was mainly attributed to decline in clothing & footwear and transport prices as well as moderation in food, beverages & tobacco. We maintain our expectation for headline inflation to average +0.7% YoY in 2019 (YTD: 0.6% YoY; 2018: +1.0% YoY) and +2.0% YoY in 2020.

DATA HIGHLIGHTS

Headline inflation eased to +0.9% YoY in November (Oct: +1.1% YoY), lower than the consensus estimate of +1.1% YoY. Similarly, on a monthly basis, CPI eased to +0.1% (Oct: +0.2%).

The softer growth in CPI was mainly attributed to decline in clothing & footwear (-1.1% YoY; Oct: -1.3% YoY), transport (-2.4% YoY; Oct: -2.3% YoY) and moderation in food & non-alcoholic beverages (+1.5% YoY; Oct: +1.8% YoY) as well as alcoholic beverages & tobacco (+0.4% YoY; Oct: +2.2% YoY). Prices also eased for furnishings, household equipment & maintenance (+1.5% YoY; Oct: +1.7% YoY) and restaurants & hotels (+1.1% YoY; Oct: +1.2% YoY), which offset the pickup in housing, utilities & fuels (+1.7% YoY; Oct: +1.6% YoY), recreation services & culture (+0.8% YoY; Oct: +0.7% YoY) and miscellaneous goods & services (+2.5% YoY; Oct: +2.2% YoY).

Prices in the transport sector declined at a slightly steeper pace of -2.4% YoY (Oct: - 2.3% YoY) as RON95 petrol price remained at RM2.08/litre, lower than the same period in 2018 (Nov 18: RM2.20). Meanwhile, on a monthly basis, prices in the transport sector were unchanged (Oct: +0.2%).

Food inflation moderated to +1.5% YoY (Oct: +1.8% YoY) due to lower growth in food away from home (+2.2% YoY; Oct: +2.9% YoY). The decline in oils & fats (-0.2% YoY; Oct: -0.3% YoY) and lower growth in milk & eggs (+1.4% YoY; Oct: +2.3% YoY), fish & seafood (+1.3% YoY; Oct: +1.4% YoY) and fruit prices (+1.1% YoY; Oct: +1.4% YoY) offset higher meat (+0.5% YoY; Oct: -0.2% YoY) and vegetables prices (+2.0% YoY; Oct: +0.8% YoY). On the global front, food prices surged by +9.5% YoY (Oct: +5.9% YoY), driven by meat and oils.

Services sector was steady at +1.9% YoY (Oct: +1.9% YoY). Growth was supported by pickup in recreation services & culture (+0.8% YoY; Oct: +0.7% YoY) which offset moderation in education (+1.6% YoY; Oct: +1.9% YoY) and restaurants & hotels (+1.1% YoY; Oct: +1.2% YoY).

Meanwhile, core inflation (DOSM) sustained at +1.4% YoY (Oct: +1.4% YoY), mainly supported by housing, utilities & fuels (+2.1% YoY; Oct: +2.0% YoY), offsetting the decline in clothing & footwear (-1.1% YoY; Oct: -1.3% YoY) and transport (-2.4% YoY; Oct: -2.3% YoY).

HLIB’s VIEW

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. In 2020, we project headline inflation to average +2.0% YoY following the implementation of targeted petrol subsidy scheme. On OPR, we maintain our expectation for BNM to reduce OPR by 25bps by 1H 2020 against the backdrop of a more modest global growth outlook.

Source: Hong Leong Investment Bank Research - 23 Dec 2019