Headline inflation declined at a slightly steeper pace in October (-1.5% YoY; Sep: -1.4% YoY), slightly below the consensus estimate of -1.4% YoY. The decline in transport, housing, utilities & fuels and clothing & footwear contributed to the decrease in the overall index, offsetting the increase in food & non-alcoholic beverages. Meanwhile, core inflation growth eased to +0.8% YoY (Sep: +1.0% YoY).

DATA HIGHLIGHTS

CPI posted its eighth consecutive month of decline in October (-1.5% YoY; Sep: -1.4% YoY), slightly lower than the consensus estimate of -1.4% YoY. However, CPI edged up on a monthly basis (+0.1%; Sep: 0%) due to increase in food & non-alcoholic beverages (+0.1%; Sep: -0.1%) and health (+0.1%; Sep: 0%).

The decline in CPI stemmed from transport (-10.2% YoY; Sep: -9.9% YoY), housing, utilities & fuels (-3.0% YoY; Sep: -3.0% YoY) and clothing & footwear (-0.4% YoY; Sep: -0.6% YoY), which contributed 41.6% to the overall index. Meanwhile, communication was flat for the month (0% YoY; Sep: +1.6% YoY). These offset the increase in food & non-alcoholic beverages (+1.5% YoY; Sep: +1.4% YoY) and recreation services & culture (+0.2%; Sep: +0.1% YoY).

The transport index registered a steeper decline of -10.2% YoY (Sep: -9.9% YoY) owing to lower RON95 (-19.5% YoY; Sep: -19.2% YoY) and RON97 (-25.0% YoY; Sep: 23.8% YoY) fuel prices relative to the previous year. On a monthly basis, the index also fell (-0.1%; Sep: 0%) due mainly to larger decline in fuels & lubricants (- 0.5%; Sep: -0.2%), which offset the stronger growth in passenger transport by air (+5.8%; Sep: +1.5%).

Food inflation increased by +1.5% YoY (Sep: +1.4% YoY), supported by ‘food at home’ (+1.4% YoY; Sep: +1.2% YoY) amid slight moderation in ‘food away from home’ (+1.8% YoY; Sep: +1.9% YoY). Subgroups that recorded an increase include fruits (+2.3% YoY; Sep: +1.8% YoY), oils & fats (+1.9% YoY; Sep: +1.7% YoY), meat (+1.7% YoY; Sep: +1.0% YoY) and fish & seafood (+1.6% YoY; Sep: +0.6% YoY). Globally, food inflation continued to rise (+6.0% YoY; Sep: +4.8% YoY) on firmer prices of sugar, dairy, cereals and vegetable oils amid decline in meat sub-index.

Services inflation slightly moderated to +1.2% YoY (Sep: +1.3% YoY) due to flat growth in communication (0%; Sep: +1.6% YoY) which offset the uptick in recreation services & culture (+0.2% YoY; Sep: +0.1% YoY). Meanwhile, growth steadied for education (+0.7% YoY; Sep: +0.7% YoY) and restaurants & hotels (+0.1% YoY; Sep: +0.1% YoY).

Core inflation (DOSM) eased to +0.8% YoY (Sep: +1.0% YoY) following the decline in transport (-0.2% YoY; Sep: -0.1% YoY), moderation in food & non-alcoholic beverages (+1.3% YoY; Sep: +1.4% YoY), housing, utilities & fuels (+0.9% YoY; Sep: +1.0% YoY) as well as flat growth in communication (0%; Sep: +1.6% YoY).

HLIB’s VIEW

In Jan-Oct 2020, headline inflation averaged -1.0% YoY, while headline inflation excluding fuel (RON95, RON97, diesel) is at +0.5% YoY. This muted inflation trend is expected to persist throughout the rest of the year against the backdrop of low oil and electricity prices. 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 - 26 Nov 2020