Headline inflation continued to decline in November (-1.7% YoY; Oct: -1.5% YoY), below the consensus estimate of -1.5% YoY. The decline in transport, housing, utilities & fuels, clothing & footwear and furnishings, household equipment & maintenance contributed to the decrease in the overall index. Meanwhile, core inflation growth eased further to +0.7% YoY (Oct: +0.8% YoY).

DATA HIGHLIGHTS

CPI remained in negative territory for the ninth straight month in November (-1.7% YoY; Oct: -1.5% YoY), lower than the consensus estimate of -1.5% YoY. On a monthly basis, CPI also posted a decline (-0.2%; Oct: +0.1%) due to decrease in transport (-1.0%; Oct: -0.1%), food & non-alcoholic beverages (-0.1%; Oct: +0.1%), furnishings, household equipment & maintenance (-0.1%; Oct: 0.0%) and education (-0.1%; Oct: 0.0%).

The transport index declined at a steeper pace of -11.1% YoY (Oct: -10.2% YoY) due to lower prices of RON95 (-21.3% YoY; Oct: -19.5% YoY) and RON97 (-26.4% YoY; Oct: -25.0% YoY) compared to the previous year. The index also declined on a monthly basis (-1.0%; Oct: -0.1%) owing to larger decline in fuels & lubricants (-2.2%; Oct: -0.5%).

Food inflation slightly eased (+1.4% YoY; Oct: +1.5% YoY) amid moderation in ‘food at home’ (+1.2% YoY; Oct: +1.4% YoY) and ‘food away from home’ (+1.6% YoY; Oct: +1.8% YoY). Milk & eggs prices continued to decline, albeit at a slower pace (- 1.9% YoY; Oct: -2.7% YoY), while fish & seafood prices steadied (+1.6% YoY; Oct: +1.6% YoY). Other food subgroups recorded more moderate growth. On the global front, food inflation continued to rise (+6.5% YoY; Oct: +6.1% YoY), driven by increase in all subgroups, with the exception of meat.

Services inflation moderated to +0.9% YoY (Oct: +1.2% YoY) following softer growth in education (+0.6% YoY; Oct: +0.7% YoY) and recreation services & culture (+0.1% YoY; Oct: +0.2% YoY). Meanwhile, growth in communication (0.0%; Oct: 0.0%) and restaurants & hotels (0.0%; Oct: +0.1%) were flat for the month.

Core inflation (DOSM) eased to +0.7% YoY (Oct: +0.8% YoY) due to decline in clothing & footwear (-0.5% YoY; Oct: -0.4% YoY), transport (-0.2% YoY; Oct: -0.2% YoY) and furnishings, household equipment & maintenance (-0.1% YoY; Oct: +0.1% YoY), as well as moderation in food & non-alcoholic beverages (+1.2% YoY; Oct: +1.3% YoY) and housing, utilities & fuels (+0.6% YoY; Oct: +0.9% YoY).

HLIB’s VIEW

In Jan-Nov 2020, headline inflation averaged -1.1% YoY, while headline inflation excluding fuel (RON95, RON97, diesel) is at +0.4% YoY. Headline inflation is expected to normalise to 2.5% YoY in 2021 following the lapse of discounts on electricity bills and higher oil price expectations. Nevertheless, we still expect BNM to maintain OPR at the current level as the growth outlook remains exposed to downside risks from further resurgence of Covid-19 cases.

Source: Hong Leong Investment Bank Research - 30 Dec 2020