Headline inflation continued to record negative growth in August (-1.4% YoY; Jul: -1.3% YoY), slightly below the consensus estimate of -1.3% YoY. This was mainly attributed to the decline in transport, housing, utilities & fuels and clothing & footwear. Meanwhile, core inflation growth sustained at +1.1% YoY (Jul: +1.1% YoY).

DATA HIGHLIGHTS

CPI recorded its sixth consecutive month of negative growth in August (-1.4% YoY; Jul: -1.3% YoY), slightly below the consensus estimate of -1.3% YoY. On a monthly basis, CPI growth slowed to +0.2% (Jul: +0.7%) due to decline in recreation services & culture (-0.1%; Jul: 0%), slowdown in transport (+0.4%; Jul: +4.9%), as well as flat growth in furnishings, household equipment & maintenance (0%; Jul: +0.3%) and education (0%; Jul: +0.4%).

The decline in CPI was contributed by transport (-9.9% YoY; Jul: -10.3% YoY), housing, utilities & fuels (-3.0% YoY; Jul: -2.6% YoY) and clothing & footwear (-0.6% YoY; Jul: -0.6% YoY). Meanwhile, food & non-alcoholic beverages (+1.3% YoY; Jul: +1.4% YoY), education (+1.1% YoY; Jul: +1.2% YoY), recreation services & culture (+0.6% YoY; Jul: +0.7% YoY) and restaurants & hotels (+0.1% YoY; Jul: +0.2% YoY) all recorded a slight moderation.

The transport index continued to decline, albeit at a slower pace (-9.9% YoY; Jul: - 10.3% YoY) following lower RON95 (RM1.68; Aug 2019: RM2.08) and RON97 (RM1.98; Aug 2019: RM2.51) fuel prices relative to the previous year. On a monthly basis, the index slowed to +0.4% (Jul: +4.9%), in line with continued moderation in global Brent oil price for the month (+4.2%; Jul: +6.0%).

Food inflation eased slightly to +1.3% YoY (Jul: +1.4% YoY) amid softer growth in ‘food at home’ (+0.9% YoY; Jul: +1.2% YoY) while ‘food away from home’ picked up (+1.9% YoY; Jul: +1.6% YoY). Among the food groups, milk & eggs (-1.0% YoY; Jul: - 0.9% YoY), meat (-0.3% YoY; Jul: +2.6% YoY) and fish & seafood (+0.3% YoY; Jul: +0.8% YoY) recorded weaker growth. On the global front, food inflation rebounded +2.2% YoY (Jul: -0.9% YoY), driven by price increases for dairy, cereals, oils and sugar.

Services inflation sustained at +1.3% YoY (Jul: +1.3% YoY). Health (+1.1% YoY; Jul: +1.1% YoY) and communication (+1.6% YoY; Jul: +1.6% YoY) continued to post steady growth, offsetting the slight moderation in education (+1.1% YoY; Jul: +1.2% YoY), recreation services & culture (+0.6% YoY; Jul: +0.7% YoY) and restaurants & hotels (+0.1% YoY; Jul: +0.2% YoY).

Core inflation (DOSM) steadied at +1.1% YoY (Jul: +1.1% YoY), supported by the uptick in miscellaneous goods & services (+3.1% YoY; Jul: +2.9% YoY), food & nonalcoholic beverages (+1.4% YoY; Jul: +1.2% YoY) and transport (+0.1% YoY; Jul: - 0.2% YoY) which offset slower growth in housing, utilities & fuels (+1.0% YoY; Jul: +1.4% YoY), education (+1.1% YoY; Jul: +1.2% YoY), recreation services & culture (+0.6% YoY; Jul: +0.7% YoY) and restaurants & hotels (+0.1% YoY; Jul: +0.2% YoY).

HLIB’s VIEW

Inflationary pressure is anticipated to be muted throughout the rest of the year owing to weak oil price expectations alongside lower electricity prices until end-2020. Following sluggish prospects for economic growth and inflation, we expect BNM to maintain OPR at the current low level until 2021.

Source: Hong Leong Investment Bank Research - 24 Sept 2020