Headline inflation was higher at +4.7% YoY in Aug (Jul: +4.4% YoY), in line with consensus’ estimates. The steeper inflation was driven mainly by higher food prices, followed by housing, utilities & other fuels. Besides, the higher CPI was also due to low base effect as a result of last year’s electricity bill discount. Core inflation rate rose to +3.8% YoY (Jul: +3.4% YoY).

DATA HIGHLIGHTS

Headline inflation was higher at +4.7% YoY in Aug (Jul: +4.4% YoY), in line with consensus’ estimates. On a MoM basis, CPI eased (+0.2%; Jul: +0.4%), following a decline in transport (-0.4%; Jul: +0.5%), and moderation in both food & beverages (+0.3%; Jul: +0.7%) and furnishings, household equipment & maintenance (+0.3%; Jul: +0.6%). These offset the pickup in housing, utilities & other fuels (+0.4%; Jul: +0.1%).

On a YoY basis, inflation was driven mainly by food & non-alcoholic beverages (+7.2% YoY; Jul: +6.9% YoY), furnishing, household equipment & maintenance (+4.3% YoY; Jul: +4.0% YoY) and housing, utilities & other fuels (+4.1% YoY; Jul: +3.8% YoY), which offset the moderation in transport (+5.2% YoY; Jul: +5.6% YoY). Restaurants & hotels (+6.4% YoY; Jul: +5.8% YoY) and recreation services & culture (+2.7% YoY; Jul: +2.5% YoY) also recorded a pickup. Besides, the higher CPI was also partly due to low base effect following the electricity bill discount implemented from Jul to Sep last year.

The transport index eased (+5.2% YoY; Jul: +5.6% YoY) due to a decline in the transport services prices. On a MoM basis, the index fell (-0.4%; Jul: +0.5%) following continued decline in RON97 prices (-7.0% MoM; Jul: -1.1% MoM) and lower average Brent oil price (USD97.7/brl; Jul: USD105.1/brl) during the month.

Food inflation accelerated (+7.2% YoY; Jul: +6.9% YoY) amid a pickup in ‘food away from home’ (+8.4% YoY; Jul: +7.8% YoY) and steady ‘food at home’ growth (+6.4% YoY; Jul: +6.4% YoY). Prices for rice, bread & other cereals rose further (+6.2% YoY; Jul: +5.5% YoY), due to the unavailability of subsidised wheat flour supply in the market since May. Milk, cheese & eggs (+9.4% YoY; Jul: +9.1% YoY), vegetables (+8.9% YoY; Jul: +7.1% YoY), and fruits (+4.1% YoY; Jul: +3.9% YoY) also increased. Meanwhile, price growth for fish & seafood (+3.7% YoY; Jul: +4.2% YoY) moderated. Similarly, meat inflation eased (+9.9% YoY; Jul: +12.0% YoY), following the new chicken price ceiling set in Jul. On the global front, food inflation eased to +7.9% YoY (Jul: +13.0% YoY), amid softer growth for meat, dairy, and cereal prices, and a drop in oils and sugar prices.

Services inflation rose to +3.7% YoY (Jul: +3.4% YoY), on the back of higher growth in restaurants & hotels (+6.4% YoY; Jul: +5.8% YoY), recreation services & culture (+2.7% YoY; Jul: +2.5% YoY), as well as steady education growth (+1.2% YoY; Jul: +1.2% YoY). Communications remained flat.

Core inflation (DOSM) picked up (+3.8% YoY; Jul: +3.4% YoY), mainly supported by food & non-alcoholic beverages (+7.3% YoY; Jul: +6.8% YoY), transport (+6.7% YoY; Jul: +6.1% YoY), recreation services & culture (+2.7% YoY; Jul: +2.5% YoY), and housing, utilities & other fuels (+1.9% YoY; Jul: +1.4% YoY).

HLIB’s VIEW

We expect headline inflation to remain above 4% in September due to the still high food inflation and low base effect from electricity prices. However, headline inflation is expected to ease in 4Q2022 when the effect of low base effect eases off. For now, we continue to expect BNM to keep OPR unchanged at 2.5% until end-year.

Source: Hong Leong Investment Bank Research - 26 Sept 2022