Higher than expected inflation in September justifies MAS' hawkish stance: CIMB

inflation rose 4.7% in Sept above 4.3% consensus.

"Last month, we warned that Sep CPI is likely to rebound to 4.2% or higher. However, the jump from 3.9% yoy in Aug to 4.7% yoy, driven by costlier private transportation, housing rentals and base effects associated with the disbursement of government rebates for public housing, was higher than expected (consensus: 4.3%, CIMB: 4.4%)," said CIMB analyst Song Seng Wun.

The government now expects 2012 CPI of “slightly above 4.5%” vs. its previous range forecast 4-4.5%. CIMB raised its 2012 CPI estimate from
4.5% to 4.7% (9M12: 4.8%, 9M11: 5.1%).

Here's more from CIMB:

Two weeks ago, the central bank surprised the market by maintaining its stance when it released the Oct monetary policy statement. In it, the MAS stated that “supply-side factors will become more binding. In particular, persistent tightness in the labour market will support slightly stronger wage increases in
2013, which will continue to be passed through to consumer prices.”

The CPI release today supports the MAS’s hawkish stance. Headline inflation rebounded 0.8% mom SA or 4.7% yoy in Sep from 3.9% yoy in Aug, well above our 4.4% forecast and consensus’s 4.3%.

The firmer inflation was predominantly the result of costlier private transportation (+10.8% yoy in Sep vs. Aug’s +6.3%) as COE premiums and fuel costs rose. Overall transport CPI rebounded to 9.6% yoy, the highest this year.

Apart from transport CPI, the higher overall CPI was lifted by a rebound in housing costs. Housing CPI (25.5% weight) climbed 6.4% yoy last month (Aug: 6.1%) in the absence of the government’s disbursement of rebates for conservancy charges and rentals (S&CC) that were given out in September last year but have been discontinued since Mar 2012. Furthermore, several town councils raised S&CC last month. Together, housing and transport accounted for 3.4% pts or 73% of Sep’s 4.7% inflation.