August 18, 2021/Cordros Report
According to the July Consumer Price Index (CPI) reading released by the National Bureau of Statistics (NBS), the year-on-year headline inflation tapered by 37bps to 17.38% – the lowest in six months. Dissecting the sub-components on a year-on-year basis, we note a sustained deceleration in the food basket (21.03% y/y vs June: 21.83% y/y) while the core segment (13.72% y/y vs June: 13.09% y/y) resumed uptrend after the moderation recorded in June. On a month-on-month basis, the headline inflation moderated by 13bps to 0.93% m/m – the lowest since March 2020 (0.84% m/m). The headline inflation print is 16bps lower than Cordros’ estimate (17.54% y/y) and 12bps less than Bloomberg’s median consensus estimate (17.50% y/y).
Surprisingly, food inflation snapped a two-consecutive month of increase as it moderated by 25bps to 0.86% m/m (June: 1.11% m/m) – the lowest in four months. We think the slower m/m increase was due to the impact of green harvest in the country’s southern parts, which outweighed the lean season in the Northern region. The breakdown provided showed that prices of Farm produce (-64bps to 0.62% m/m) moderated to the lowest since October 2015 (0.43% m/m) while the Processed food slowed by -14bps to 0.93% m/m – lowest since February 2020 (0.87% m/m).
Elsewhere, core inflation increased by 49bps to 1.31% m/m – the highest since June 2017 (1.32% m/m). The increase was primarily due to the price pressure witnessed across the HWEGF (+10bps) and Clothing & footwear (+1bp) sub-baskets, both of which contribute 47.5% to the total core basket. On a year-on-year basis, the core inflation rose 63bps to 13.72% y/y on account of price pressure witnessed across all the sub-baskets safe for the Health (-7bps) and Processed food (-66bps) sub-baskets.
Overall, we forecast a 5bps increase in the headline inflation to 0.98% m/m in August, with the favourable base effect from 2020 cascading to a y/y print of 16.95%.
