November 15, 2021/Cordros Report
Domestic prices sustained their deceleration for the seventh consecutive month in line with the favourable base effects from the prior year. According to the National Bureau of Statistics (NBS), headline inflation moderated by 64bps to 15.99% y/y – the lowest since December 2020 (15.75% y/y). The deceleration was broad-based as the food basket (-123bps to 18.34% y/y) moderated to an 11-month low while the core basket (-51bps to 13.24% y/y) slowed to the lowest since June 2021 (13.09% y/y). The outturn in the headline index was 33bps lower than Cordros’ estimate (16.32% y/y) and 21bps lower than Bloomberg’s median consensus estimate (16.20% y/y), with deviations stemming from both the food and core baskets. On a month-on-month basis, headline inflation moderated by 17bps to 0.98%.
Food prices moderated by 35bps to 0.91% m/m (September: 1.26% m/m) on account of a 46bps slowdown in the price of Processed food (0.85% m/m vs September: 1.31% m/m) basket. Meanwhile, prices of Farm produce increased by 6bps to 1.13% m/m (September: 1.07% m/m) despite October being the primary harvest season. From our channel checks, we understand that the harvest was below average due to (1) persistent security challenges, (2) lower than typical access to inputs due to below-average income, and (3) flooding. Indeed, Famine Early Warning Systems Network (FEWSNET) reported that prices for both staple and cash crops remain significantly above the five-year average and last year. Besides, we think consumers might have started front-loading purchases of foodstuff in anticipation of a festive-induced price increase in the last two months of the year.
The core basket (-45bps to 0.80% m/m) moderated after the increase recorded in the prior month. The decline comes despite price increases across all the sub-baskets that make up the core inflation. Price pressures were most significant across the Utilities (+9bps to 0.94% m/m), Furnishings & household equipment maintenance (+12bps to 1.21% m/m), Health (+10bps to 1.13% m/m), and Transport (+13bps to 1.25% m/m) sub-baskets. Compared to last year’s corresponding period, the core inflation rose by 13.24% y/y (September: 13.74% y/y).
Overall, we now look for a m/m headline inflation of 1.01% in November and 1.07% in December, translating to y/y readings of 15.32% y/y and 14.70% y/y, respectively.
