● Headline inflationremain in a deflationary zonefor the fourth straight month,slightly slower than expectedat-1.9% YoY inJune(consensus: -1.8%; KIBB: -1.7%) and smaller than May’s -2.9%.
- Subdued demand conditions and weak energy pricescontinued to persist, though there was some improvement following the implementation of Recovery Movement Control Order (RMCO) from 10 June.
- MoM: rose at the fastest pace in 40 months (1.0%; May: 0.3%) driven by relatively higher fuel price and rising food prices (0.4%; May: 0.3%) in line with the transition to RMCO.
- Core inflation: growth edged up marginally (1.2%; May: 1.1%).
● Smaller drop in fuel price and cheaper electricity cost was partially offset by rising food prices
- Transport (-14.3%; May: -20.8%): mainly due to the lower retail oil price, albeit declined by less (RON95: -25.8% YoY; May: -37.3%), in tandem with an improvement in global Brent crude price. On MoM, it rose 7.8% (May: 1.0%), a 63-month high.
- Housing, water, electricity, gas & other fuels (-2.6%; May: -2.6%): growth contraction was unchanged for the second straight month as it is impacted by the six-month electricity bill discount from April to September.
- Food and non-alcoholic beverages (1.6%; May: 1.2%): bucked the trend, expanding to a 6-month high.
● Rising inflation across most advanced and developing economies on economic restart
- Eurozone (0.3%): edged up in June on higher food, alcohol & tobacco as the block allowed more businesses to reopen.
- US (0.6%): rebounded in June, the biggest gain since August 2012, driven by an increase in prices of gasoline and food.
- China (2.5%): expanded marginally in June due to a rise in food prices attributable to a decline in hog production and pork import as well as severe floods in many regions across China.
● 2020 CPI forecastmaintained at -0.7% (2019: 0.7%), on the back of persistentdeflationary environmentamid fears of the new wave of COVID-19 infections
- Year-to-date, CPI fell by 0.8% YoY (Jan-Jun 2019: 0.2%) on the impact ofthe unprecedented measures to curb theCOVID-19pandemic as well as the collapse of oil price. Nonetheless, the implementation of the RMCO from 10 June until 31 August is expected to provide some support to prices in the immediate term though deflation will likely persist on hampered consumer confidence amid surging unemployment and concerns of a resurgence of COVID-19 infections.
- On the monetary front, we believe BNM has ample room to embark on a 25 basis points OPR cut to 1.50% at the next Monetary Policy Committee meeting in September. This is in line with the expectation of subdued inflationary pressure and aggressive monetary easing by central banks of advanced and developing economies as well as the need for monetary policy to reinforce the fiscal measures deployed under the PRIHATIN and PENJANA packages
Source: Kenanga Research - 23 Jul 2020
Created by kiasutrader | Aug 26, 2024