Economic Update - CPI

Economic Update 17 August 2012

Consumer Price Index (CPI) – July 2012
Transport index weigh down CPI

Within expectation – July’s Consumer Price Index (CPI) continued its downtrend after registering growth of 1.4% y-o-y. On a monthly basis, the CPI figures remain
unchanged at 104.8. Such result is within our forecast for July’s CPI.

In conjunction with the marked down RON 97 petrol prices in early June’12 from RM2.80/litre to RM2.60/litre, the Transport Index has decelerated further to –0.5% mo-
m from –0.3% m-o-m previously. Such result is translating into lower inflation.

Besides the decline in transport index, there were other indices, which also contracted at a lower pace such as: -

1. Clothing and Footwear (-0.1% m-o-m)
2. Semi-Durable Goods (-0.2% m-o-m)
3. Non-Durable Goods (-0.1% m-o-m)

The Overnight Policy Rate (OPR) remain unchanged – With two sessions left for the monetary policy committee meeting in September and November, we stick to our forecast that the OPR will remain at 3.00% for the rest of the year.

Based on our opinion, the current OPR is appropriate to stimulate domestic growth amid slowdown in external activities, which is expected to affect domestic economic
performance within the next four months.

This takes into account the deteriorating trade surplus in 2Q12, which saw the decrease of 21.3% q-o-q, or RM5.79b, as compared to the prevailing quarter of
RM27.09b.

Lower RON 97 petrol price at the moment keeping inflation at bay – If there is no upward revision in RON 97 petrol price in August, we expect August CPI will further drop to between 1.2% y-o-y and 1.3% y-o-y.