Headline inflation eased to +4.0% YoY in Oct (Sep: +4.5% YoY), slightly surpassing the consensus estimate of +3.9% YoY. Inflation was dragged mainly by softer growth in transport and housing, utilities & other fuels, along with the absence of low base effect following the discontinuation of last year’s electricity discount. Meanwhile, core inflation rose further to +4.1% YoY (Sep: +4.0% YoY).

DATA HIGHLIGHTS

Headline inflation eased to +4.0% YoY in Oct (Sep: +4.5% YoY), slightly surpassing the consensus estimate of +3.9% YoY. On a MoM basis, CPI picked up pace (+0.2%; Sep: +0.1%), propped up by stronger growth in food & beverages (+0.5%; Sep: +0.3%), alongside steady growth in restaurants & hotels (+0.3%; Sep: +0.3%) and transport (+0.1%; Sep: +0.1%).  

On a YoY basis, inflation was weighed down by slower growth in restaurants & hotels (+6.8% YoY; Sep: +6.9% YoY), transport (+5.2% YoY; Sep: +5.3% YoY), furnishing, household equipment & maintenance (+4.1% YoY; Sep: +4.4% YoY), as well as housing, utilities & other fuels (+1.5% YoY; Sep: +4.0% YoY). These offset the acceleration in food & non-alcoholic beverages (+7.1% YoY; Sep: +6.8% YoY) and recreation services & culture (+3.4% YoY; Sep: +3.1% YoY). The absence of low base effect following the discontinuation of last year’s electricity discount also contributed to the slower rate.  

The transport index eased slightly (+5.2% YoY; Sep: +5.3% YoY), following slower RON 97 price growth (+39.0% YoY; Sep: +52.8% YoY) relative to the previous year. However, the index posted a steady increase on a MoM basis (+0.1%; Sep: +0.1%), in line with the higher average Brent oil price during the month (USD93.6/brl; Sep: USD90.6/brl).  

Food inflation accelerated to +7.1% YoY (Sep: +6.8% YoY). Both ‘food at home’ (+5.8% YoY; Sep: +5.7% YoY) and ‘food away from home’ (+9.3% YoY; Sep: +8.7% YoY) trended higher. Meat prices spiked up (+7.3% YoY; Sep: +6.6% YoY) as standard chicken prices averaged higher during the month (RM9.46/kg), exceeding the control price level set by the government (RM9.40/kg). Similarly, inflation also trended higher for rice, bread & other cereals (+7.3% YoY; Sep: +6.8% YoY), fruits (+5.5% YoY; Sep: +5.2% YoY) and fish & seafood (+3.4% YoY; Sep: +3.3% YoY). Meanwhile, milk, cheese & eggs observed steady price growth (+8.8% YoY; Sep: +8.8% YoY), while prices for vegetables eased (+4.8% YoY; Sep: +6.3% YoY). On the global front, food inflation continued to moderate (+2.0% YoY; Sep: +5.2% YoY) following slower price growth across meat, dairy, and cereals, amid declining oil and sugar prices.  

Services inflation picked up to +4.2% YoY (Sep: +4.0% YoY) on the back of stronger recreation services & culture (+3.4% YoY; Sep: +3.1% YoY) and education (+1.4% YoY; Sep: +1.3% YoY) inflation. Meanwhile, restaurants & hotels recorded a slight moderation (+6.8% YoY; Sep: +6.9% YoY). Communications remained flat. 

Core inflation (DOSM) continued to rise (+4.1% YoY; Sep: +4.0% YoY), driven by higher food & non-alcoholic beverages (+7.9% YoY; Sep: +7.5% YoY), transport (+7.7% YoY; Sep: +7.4% YoY) and recreation services & culture (+3.4% YoY; Sep: +3.1% YoY), alongside steady growth in housing, utilities & other fuels (+1.8% YoY; Sep: +1.8% YoY).

HLIB’s VIEW

Core inflation continued to increase, signalling build-up of underlying inflationary pressure due mainly to the recovery in domestic demand and labour market. In view of the rising core inflation and continued expansion, we maintain our expectation for BNM to raise OPR by another 25bps in Jan and Mar next year, bringing OPR to 3.25%.

Source: Hong Leong Investment Bank Research - 29 Nov 2022