Above our expectation – Consumer price index (CPI) in Sept’17 registered another hike with a growth of +4.3% y-o-y (v.s Aug’17: +3.7%). The result is above our expectation of +4.0% y-o-y but within market consensus of +4.3% y-o-y. The higher-than-expected result was lifted by spike in Transport component. However, when compared to previous month, CPI dropped to +0.3% m-o-m (v.s Aug’17: +0.9%).

Robust growth for Transport index – Transport component expanded enormously by recording +15.8% y-o-y growth this month as compared to +11.7% in Aug’17. Notably, average price of RON95 was RM2.19 in Sept’17 against RM1.70 in corresponding month a year ago. As for RON97, the average price increased to RM2.48 in Sept’17 compared to RM2.05 in Sept’16. Overall, retail fuel prices for RON95, RON 97 as well as Diesel were increased by 5 sen, 8 sen and 12 sen respectively. However, on a monthly basis, the Transport index marginally declined to +2.1% m-o-m (v.s Aug’17: +4.5%).

Other main components showed a flattish growth in Sept’17:-

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

• Recreation Services & Culture: +0.4% y-o-y (vs +0.4% in Aug’17)

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

Softer uptrend in Food inflation – Food and Non-Alcoholic beverage components which account for 30.2% of CPI components clinching another growth by posting +4.6% y-o-y in Sept’17 (v.s Aug’17: +4.3%). It was driven by growth in sub-group products such as Milk and Eggs (+1.0% y-o-y, v.s Aug’17: - 1.0%) and Oil & Fats products (+39.6% y-o-y, v.s Aug: +39.2%).

Another uptrend is expected for October CPI – We believe CPI would grow further in the following month underpinned by Transport component. Thus, we revise upwards our headline inflation to +4.0% yo-y from +3.6% y-o-y for the whole year of 2017 amid upwards pressure on prices especially from the Transport component. However, we maintain our view that BNM will keep the OPR unchanged at 3.0% for the rest of the year as inflation was propelled by cost factor.

Source: JF Apex Securities Research - 25 Oct 2017