● Headline inflation eased in February, below expectation (1.3% YoY; consensus: 1.4%; KIBB estimate: 1.6%; Jan: 1.6%)

- Attributable to cheaper fuel price and weakness in underlying price pressure, reflecting suppressed demand conditions amid impact from the COVID-19 pandemic.

- MoM: muted inflationary pressure, lowest in five months (0.0%; Jan: 0.1%).

- Core inflation: edged down to a nine-month low(1.3%;Jan: 1.6%).

● Softergrowth in prices led by the indicesof transport, housing, water, electricity, gas & other fuels and food & non-alcoholic beverages

- Transport (2.4%; Jan: 3.9%): moderated on softer growth in fuel prices (RON95: 4.0% YoY; Jan: 4.9%).

- Housing, water, electricity, gas & other fuels (1.6%; Jan: 1.7%): eased marginally, but continued to register a seasonal MoM uptick.

- Food & non-alcoholic beverages (0.8%; Jan: 0.9%): edged slightly loweron a broad-based slowdown in prices of food at home (0.2%; Jan: 0.4%) and away from home (1.3%; Jan: 1.4%).

● Weaker inflationary pressure across most advanced and developing economies

- Eurozone (1.2%): eased to a three-month low due to decline in Brent crude oil price ( -12.9% YoY or USD55.7/barrel; Jan: 7.1% or USD 63.6).

- China (5.2%):decreased on COVID-19 fears, butremainedat around eight-year highas theimposed lockdownexacerbated shortages in supply of pork.

- Singapore (0.3%): softened to a six-month low, with its core index fell for the first time in a decade attributable to cheaper airfares and holiday expenses.

● 2020 CPI forecast revised down to 0.5-1.0% from 1.0-1.5% (2019: 0.7%) incorporating spillovers from the COVID-19

- The Movement Control Order (MCO), which has been extended to 14 April, will adversely impact private spending, with both firms and households expected to adopt cautious spending behaviour, weighing on prices of discretionary goods, amid rising uncertainty on level of future income. With lockdowns implemented across the globe along with the ongoing oil price war between Saudi Arabia and Russia, crude oil price is also expected to remain pressured, bringing down domestic retail fuel prices.

- The next MPC decision will depend on the development of the rapidly evolving COVID-19 pandemic. Should the situation worsen even after the MCO and coupled with a potential global crisis, it would not surprise us if BNM would bring the OPR all the way down to match the GFC-low of 2.00%.

Source: Kenanga Research - 26 Mar 2020