Headline inflation eased to +4.5% YoY in Sep (Aug: +4.7% YoY), slightly lower than consensus estimate of +4.6% YoY. The moderation stemmed from softer inflation in food & beverages, as well as in housing, utilities & other fuels. Meanwhile, core inflation rose further to +4.0% YoY (Aug: +3.8% YoY).

DATA HIGHLIGHTS

Headline inflation eased to +4.5% YoY in Sep (Aug: +4.7% YoY), slightly lower than consensus estimate of +4.6% YoY. On a MoM basis, CPI softened to +0.1% (Aug: +0.2%) following flat growth for housing, utilities & other fuels (0.0%; Aug: +0.4%), which offset the small rebound in transport (+0.1%; Aug: -0.4%) and steady food & beverages (+0.3%; Aug: +0.3%) growth.

On a YoY basis, inflation was dragged by softer growth in food & non-alcoholic beverages (+6.8% YoY; Aug: +7.2% YoY) and housing, utilities & other fuels (+4.0% YoY; Aug: +4.1% YoY), despite the pickup in restaurants & hotels (+6.9% YoY; Aug: +6.4% YoY), transport (+5.3% YoY; Aug: +5.2% YoY), furnishing, household equipment & maintenance (+4.4% YoY; Aug: +4.3% YoY), as well as recreation services & culture (+3.1% YoY; Aug: +2.7% YoY). CPI was also buoyed partly by low base effect attributed to the electricity bill discount implemented from Jul to Sep last year.

The transport index accelerated (+5.3% YoY; Aug: +5.2% YoY) mainly owing to price increases in operations of personal transport equipment, amid the still-high RON97 prices (+52.8% YoY; Aug: +60.4% YoY). On a MoM basis, the index posted a small rebound (+0.1%; Aug: -0.4%).

Food inflation moderated to +6.8% YoY (Aug: +7.2% YoY) following slower growth in ‘food at home’ (+5.7% YoY; Aug: +6.4% YoY) despite the higher ‘food away at home’ (+8.7% YoY; Aug: +8.4% YoY) growth. Inflation eased across most food subgroups; milk, cheese & eggs (+8.8% YoY; Aug: +9.4% YoY), vegetables (+6.3% YoY; Aug: +8.9% YoY), as well as fish & seafood (+3.3% YoY; Aug: +3.7% YoY). Similarly, meat inflation (+6.6% YoY; Aug: +9.9% YoY) also softened, amid the continuation of price ceilings set for chicken. These offset the acceleration in prices for rice, bread & other cereals (+6.8% YoY; Aug: +6.2% YoY) and fruits (+5.2% YoY; Aug: +4.1% YoY). On the global front, food inflation also eased (+5.5% YoY; Aug: +7.7% YoY), following moderate growth for dairy and cereals, alongside decreases in oils and sugar prices, while meat inflation trended higher.

Services inflation picked up to +4.0% YoY (Aug: +3.7% YoY), following pent-up demand in post pandemic phase on the back of higher prices for restaurants & hotels (+6.9% YoY; Aug: +6.4% YoY), recreation services & culture (+3.1% YoY; Aug: +2.7% YoY), and education (+1.3% YoY; Aug: +1.2% YoY). Communications remained flat.

Core inflation (DOSM) rose (+4.0% YoY; Aug: +3.8% YoY), following stronger growth across the board excluding housing, utilities & other fuels. Growth was mainly driven by food & non-alcoholic beverages (+7.5% YoY; Aug: +7.3% YoY), transport (+7.4% YoY; Aug: +6.7% YoY) and recreation services & culture (+3.1% YoY; Aug: +2.7% YoY).

HLIB’s VIEW

We expect headline inflation to soften in 4Q22 as low base effect dissipates. However, heightened uncertainties on the global front including volatile global commodity prices and supply chain disruptions continue to pose upside risks. We maintain expectation for BNM to keep OPR unchanged at 2.5% until end-year.

Source: Hong Leong Investment Bank Research - 25 Oct 2022