● Headline inflation eased to a 4-month low, below expectation (1.1% YoY; consensus: 1.4%; KIBB forecast: 1.5%; Aug: 1.5%)

- MoM: muted inflationary pressure (0.0%; Aug: 0.2%).

- Core inflation: edged down to lowest in 4 months (1.5%; Aug: 2.0%).

- Attributable to fading low base effect arising from the three-month GST zerorisation in 2018, low price ceiling imposed on domestic fuel prices, adjustment in the retail oil pricing mechanism at the beginning of the year, as well as lacklustre demand-pull pressure.

● Softer growth in prices led by the index of communication, food & non-alcoholic beverages and recreation services & culture

- Communication (-0.1%; Aug: 2.2%) and recreation services & culture (0.8%; Aug: 2.3%): drifted down on high base effect following the reinstatement of the Sales and Services Tax (SST) in September 2018.

- Food & non-alcoholic beverages (2.2%; Aug: 2.6%): moderated amid lower increase in prices of vegetables and fruits.

● Subdued inflation trend across most advanced and developing economies

- Eurozone (0.8%): dipped to near 3-year low, further below the European Central Bank’s target of 2.0%, due to cheaper energy prices.

- Thailand: withered to an 8-month low on lower transport cost and softer growth in food prices.

- South Korea (-0.4%): fell into the negative territory, reflecting the expanded free education for high school students and an increased coverage of national health insurance.

● 2019 CPI forecast maintained at 0.7% (YTD: 0.6%; 2018: 1.0%)

- Inflationary pressure to remain benign as global growth slowdown, continued uncertainties over the US-China trade feud and rising geopolitical tension in the Middle East are expected to negatively impact the domestic economic activity.

- Subdued inflation and moderating domestic indicators suggest higher likelihood of another 25 basis points rate cut by the BNM at its final policy meeting on November 5th, bringing the overnight policy rate to settle at 2.75% by year-end.

Source: Kenanga Research - 24 Oct 2019