November 16, 2021/United Capital Report
Yesterday, the National Bureau of Statistics (NBS) released the Consumer Price Index (CPI) report for Oct-2021. The headline inflation rate came in well below expectations at 15.99% y/y, lower than our forecast of 16.25%, and 64bps lower than the Sep-2021 print (16.63%). This implies a faster-than-anticipated deceleration in the rate of change in prices. On a m/m basis, the broad CPI increased by 0.98%, slower than the 1.15% m/m increase in Sep-2021. The slower increase likely reflects easing FX pressures due to improved supply as well as some supply chain normalisation. Nevertheless, the 2020 high base effect remains the key driver of disinflation.
Looking at the key sub-components, food inflation printed at 18.34% y/y in Oct-2021 compared to 19.57% y/y in Sep-2021. On a m/m basis, the Food sub-index increased by 0.91% in Oct-2021, down 35bps from 1.26% in Sep-2021, reflecting some positive impact from the seasonal harvest. Meanwhile, core inflation printed at 13.24% y/y in Oct-2021, from 13.74% y/y in Sep-2021. On a m/m basis, core inflation rose 0.80% m/m in Oct-2021, down 44bps when compared with 1.24% recorded in Sep-2021. The core inflation uptrend remains largely due to pressure on price of gas, fuels & lubricants, transportation, as well as imported items (vehicle spare parts & clothing materials), in line with the global energy and car parts shortage.
While price pressures like relatively low harvest volumes, chronic supply chain bottlenecks, and limited access to FX through official channels remain significant, we expect disinflation to persist in the short term, as the high base effect on inflation will likely become more prominent in the closing months of 2021. As a result, we forecast the headline inflation rate to print at 15.25% y/y in Nov-2021, 74bps lower than the Oct-2021 print. We believe this weakens the case for tighter monetary policy at the forthcoming MPC meeting, given our assumption of continued disinflation.
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