Above expectations – Consumer price index (CPI) in Aug’17 spiked to 3.7% y-o-y (v.s July’17: +3.2%). The result is above our in-house expectation of 3.0% y-o-y and market consensus of 3.4% y-o-y. The higher-than-expected result was underpinned by massive jump in Transport component. As compared to previous month, CPI rebounded from sluggish growth by posting +0.9% m-o-m after posting negative growth for 5th consecutive month.

Expansion in Transport index – The Transport component expanded to +11.7% in Aug’17 as compared to +7.7% in July’17. In Aug’17, the average price for RON95 was RM2.12 while RM2.39 for RON97. Retail fuel prices for RON95, RON 97 as well as Diesel were increased by 13sen, 16sen and 10sen respectively. We believe the higher Brent crude oil prices in August against previous month resulted in increase of the retail fuel prices, thus lifting the transport index higher. Besides that, on a monthly basis, the Transport index rebounded from negative by posting +4.5% m-o-m after recording a contraction for 5th consecutive month.

Modest expansion by other main components – Other main components also led to expansion of CPI in Aug’17:-

• Housing, Water, Electricity, Gas & Other Fuels: +2.4% y-o-y (vs July’17: +2.2 y-o-y)

• Furnishings, Household Equipment: +2.7% y-o-y (vs July’17: +2.6 y-o-y)

• Restaurants and Hotels: +2.8% y-o-y (vs July’17: +2.6 y-o-y)

Minor growth for Food inflation – Food and Non-Alcoholic beverage components which account for 30.2% of CPI components, showed a little growth by posting +4.3% y-o-y in Aug’17 (v.s July17: +4.2%) as driven by growth in Meat (+1.9% y-o-y, v.s July: +1.3%), Bread & bakery products (+2.6% y-o-y, v.s July: +2.3% yoy in Jul) as well as Fish & seafood (+8.1% y-o-y, v.s July: +6.7%).

Expect another uptick in Sept'17 CPI – We estimate that CPI will grow moderately by +4.0% y-o-y in June’17 buoyed by Transport index as it remains elevated to drive the consumer 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 unchanged at 3.0% for 2017 and do not foresee any further rate hike in 2H17 as we believe cost-driven inflation will be tapering off with mild recovery in global commodity prices as well as strengthening of Ringgit.

Source: JF Apex Securities Research - 21 Sept 2017