● Consumer prices registered a steeper decline in September, halting the three-month streak of a receding deflation (-0.7% YoY; consensus: -0.6%; Aug: -0.5%)

- MoM (-0.1%; Aug: 0.3%): first sequential deflation in five months.

- Core inflation (0.3%; Aug: 0.3%): remained at a relatively subdued level.

● The decline was attributable to a larger fall in prices of non-core goods (-3.2%; Aug: -2.6%)

- Transport & communication (-5.0%; Aug: -4.5%): deepest drop in two months due to a lower global crude oil price (USD40.97/barrel; Aug: USD44.74) amid growing demand concerns following the resurgence of COVID-19 cases in multiple major economies.

- Food & non-alcoholic beverages (1.4%; Aug: 1.6%): inflation softened on a smaller increase in raw food prices, specifically fresh vegetables (11.2%; Aug: 13.9%), albeit remained elevated due to adverse weather conditions.

● Mixed inflationary trend across the advanced and developing economies

- Euro area (-0.3%; Aug: -0.2%): largest deflation in over five years driven by the German temporary VAT reduction and falling energy prices.

- ID (1.4%; Aug: 1.3%): ticked up for the first time since February on higher prices of food, specifically garlic and cooking oil.

● 2020 CPI forecast retained at -1.0 ’ 0.0% (YTD: -1.0%; 2019: 0.7%)

- The prospect of easing deflationary pressure supported by further disbursement of fiscal stimulus and effective containment of the COVID-19 virus domestically is expected to be clouded by weakness in the global oil price, elevated level of unemployment and domestic political instability.

- Policy-wise, we continue to expect an unchanged policy rate (0.50%) for the remainder of 2020, as indicated by the BoT’s less-dovish tone and amid limited policy space.

Source: Kenanga Research - 6 Oct 2020