Below expectations – Consumer price index (CPI) eased for fourth consecutive month, recording a soft growth of +3.2% y-o-y in July’17 (v.s June’17: +3.6%) following the highest figure clinched in Mar’17. The result was marginally below our house expectation and market consensus. The result was dented by slower growth in most of the main components. When compared to m-o-m, CPI was flat at -0.1% (v.s June’17: - 0.2%) and recorded a negative growth for 5th consecutive month.

Transport index dropped further – The Transport component continued to show a downward momentum by posting +7.7 y-o-y (v.s June’17: +10.5%) for fourth consecutive month since April. However, the domestic retail fuel price in July’17 increased by 14sen for RON95, 13sen for RON97 and 15sen for Diesel. Nonetheless, on a monthly basis, the Transport index posted a negative growth for 5th consecutive month by posting -1.1% (vs June’17: -2.4%) in July’17.

CPI expansion hits by softer growths in main components – The moderate CPI growth in July’17 was affected by softer yearly growth in its main components such as:

• Recreation Services & Culture: +2.6% y-o-y (vs +3.0 y-o-y in June’17)

• Education: +1.6% y-o-y (vs +1.7 y-o-y in June’17)

• Miscellaneous Goods & Services: +1.1% y-o-y (vs +1.2 y-o-y in June’17)

Flattish Food inflation and Alcoholic and Tobacco components – Food and Non-Alcoholic beverage components which account for 30.2% of CPI components, moderating in July’17 with +4.2% y-o-y (v.s June’17: +4.3%). The softer growth in this item was mainly due to small growth in food components such as Milk & Eggs, Fruits, Fish & Seafood as well as Oils & Fats. Besides that, Alcoholic and Tobacco components were also flat at +0.1% y-o-y for few consecutive months.

Foresee another moderate growth in Aug'17 CPI – We estimate that CPI will grow moderately by +3.0% y-o-y in Aug’17 with the continuous moderation in all of the main components and we believe Food and Transport indexes to remain as a key driver to our price index. Therefore, we maintain our headline inflation of +3.6% y-o-y for the whole year of 2017. We also maintain our view that BNM will keep the OPR at 3% in 2017 and do not foresee any further rate cut in 2H17 as we believe current interest rate is accommodative to economic growth and inflation.

Source: JF Apex Securities Research - 23 Aug 2017