Below expectation – Consumer price index (CPI) in Oct’17 moderated to +3.7% y-o-y (v.s Sept’17: +4.3%). The result is below our expectation of +4.4% and consensus of +4.1%. The lower-than-expected result was dented by massive drop in Transport component. Besides, as compared to previous month, CPI dropped to -0.2% m-o-m (v.s Sept’17: +0.3%).

Drop in Transport index – Transport component eased to +12.1% y-o-y growth this month as compared to +15.8% y-o-y growth in previous month. Similarly, on a monthly basis, the Transport index recorded - 0.2% m-o-m v.s Sept’17: +2.1%. The drop in Transport index in Oct’17 was induced by lower retail fuel price as prices increased by 22sen in Oct’17 as compared to 25sen in Sept’17. Overall, retail fuel prices in Oct’17 increased by 7sen for both RON95 and RON 97 while 8sen for Diesel. In addition, average price of RON95 was RM2.18 in Oct’17 against RM1.80 in corresponding month a year ago, while as for RON97, the average price increased to RM2.48 in Oct’17 as compared to RM2.15 in Oct’16.

Besides, other key components continued to moderate in this month: -

• Clothing and Footwear : -0.4% y-o-y (vs -0.3% in Sept’17)

• Furnishings; Household Equipment : +2.6% y-o-y (vs +2.8% in Sept’17)

• Health : +2.4% y-o-y (vs +2.5% in Sept’17)

• Communication : -0.4% y-o-y (vs -0.3% in Sept’17)

Small growth in Food inflation – Food and Non-Alcoholic beverage components which account for 30.2% of CPI components posted a little growth of +4.4% y-o-y in Oct’17 (v.s Sept’17: +4.6%). It was attributed by higher prices in sub-group products such as Meat (+3.2% y-o-y, v.s Sept17: +0.4%), Fruits (+4.0% y-o-y, v.s Sept’17: +3.9%) and Vegetables (+5.0% y-o-y, v.s Sept’17: +4.8%).

Reckon moderate growth in CPI – We expect that inflation rate for Nov’17 to moderate due to high base as cooking oil subsidies were removed in Nov’16. However, transport index could elevate due to recent weeks of price hike. We maintain our headline inflation of +4.0% y-o-y for the whole year of 2017 in view that our headline inflation will be driven by cost-factor. In the last MPC meeting, BNM said that it may “consider reviewing the current degree of monetary accommodation” and market interpreted that the normalization of interest rate to be started next year with current strong economic growth and elevated inflation rate.

Source: JF Apex Securities Research - 27 Nov 2017