Headline inflation continued to decline at a steady pace in September (-1.4% YoY; Aug: -1.4% YoY), slightly below the consensus estimate of -1.3% YoY. The decline in transport, housing, utilities & fuels and clothing & footwear contributed to the decrease in the overall index. Meanwhile, core inflation growth eased to +1.0% YoY (Aug: +1.1% YoY).

DATA HIGHLIGHTS

CPI declined for the seventh consecutive month in September (-1.4% YoY; Aug: -1.4% YoY), slightly below the consensus estimate of -1.3% YoY. On a monthly basis, CPI was unchanged (Aug: +0.2%) due to flat growth in transport (0%; Aug: +0.4%) and housing, utilities & fuels (0%; Aug: +0.2%). Meanwhile, food & non-alcoholic beverages registered a decline (-0.1%; Aug: +0.1%).

The decline in CPI was attributed to transport (-9.9% YoY; Aug: -9.9% YoY), housing, utilities & fuels (-3.0% YoY; Aug: -3.0% YoY) and clothing & footwear (-0.6% YoY; Aug: -0.6% YoY), which contributed 41.6% to the overall index. Moderation was recorded in recreation services & culture (+0.1% YoY; Aug: +0.6% YoY) and education (+0.7% YoY; Aug: +1.1% YoY). Growth picked up for food & non-alcoholic beverages (+1.4% YoY; Aug: +1.3% YoY), alcoholic beverages & tobacco (+0.5% YoY; Aug: +0.3% YoY) and furnishings, household equipment & maintenance (+0.1% YoY; Aug: -0.1% YoY).

The transport index posted a steady decline (-9.9% YoY; Aug: -9.9% YoY) amid lower RON95 (RM1.68; Sep 2019: RM2.08) and RON97 (RM1.98; Sep 2019: RM2.60) fuel prices relative to the previous year. On a monthly basis, growth was flat (Aug: +0.4%), due to negative growth in fuels & lubricants (-0.2%; Aug: -0.6%) and passenger transport by road (-0.1%; Aug: -0.2%) which offset positive growth in passenger transport by air (+1.5%; Aug: +18.3%).

Food inflation edged higher (+1.4% YoY; Aug: +1.3% YoY), supported by ‘food at home’ (+1.2% YoY; Aug: +0.9% YoY) amid steady growth in ‘food away from home’ (+1.9% YoY; Aug: +1.9% YoY). Subgroups that recorded an increase include vegetables (+5.1% YoY; Aug: +5.0% YoY), fruits (+1.8% YoY; Aug: +0.7% YoY), oils & fats (+1.7% YoY; Aug: +1.5% YoY), meat (+1.0% YoY; Aug: -0.3% YoY) and fish & seafood (+0.6% YoY; Aug: +0.3% YoY). On the global front, food inflation increased by +5.0% YoY (Aug: +2.0% YoY), with firmer prices of oils, cereals, sugar and dairy.

Services inflation maintained at +1.3% YoY (Aug: +1.3% YoY). Health (+1.1% YoY; Aug: +1.1% YoY), communication (+1.6% YoY; Aug: +1.6% YoY) and restaurants & hotels (+0.1% YoY; Aug: +0.1% YoY) posted steady growth, offsetting the moderation in education (+0.7% YoY; Aug: +1.1% YoY) and recreation services & culture (+0.1% YoY; Aug: +0.6% YoY).

Core inflation (DOSM) eased slightly to +1.0% YoY (Aug: +1.1% YoY) following marginal decline in transport (-0.1% YoY; Aug: +0.1% YoY) alongside moderation in education (+0.7% YoY; Aug: +1.1% YoY), recreation services & culture (+0.1% YoY; Aug: +0.6% YoY) and miscellaneous goods & services (+2.7% YoY; Aug: +3.1% YoY).

HLIB’s VIEW

Against the backdrop of weak oil price pressure and extension of discounts on electricity bills until December 2020, we lower our average 2020 headline inflation forecast to -1.0% YoY, from -0.5% YoY previously (2019: +0.7% YoY). With 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 - 22 Oct 2020