April 19, 2022/CSL Research

The Consumer Price Index (CPI) data released by the National Bureau of Statistics (NBS)  showed that headline inflation increased for the second consecutive month by 21bps to  15.92% y/y in March, with most of the drivers stemming from the food inflation (+9bps to  17.20% y/y), while core inflation moderated by 10bps to 13.91%. Akin to the y/y reading,  headline inflation increased by 11bps to 1.74% m/m.

We link the uptick witnessed in the food index to the negative pass-through from higher logistics and haulage costs. For context, the transport inflation, which has a correlation of  c.75% with food inflation, touched a 7-month high of 15.37%, reflecting a higher AGO price  (+140 y/y) and higher than normal PMS pump prices across the country due to the recent  fuel scarcity.

On the flip side, while core inflation moderated by 10bps in the review period (March), the  drivers remain unclear as noticeable price pressures were recorded in 90.2% of the core  inflation subcomponents. In fact, elevated energy prices – the main driver of core inflation in  the preceding month – remained unabated as the Russia-Ukraine war continued. These  elevated energy prices were largely reflected in the HWEGF – the largest component of the  core index which was up by 50bps.

The stage seems set for further inflationary pressures in April due to festive induced demand and persisting rise in energy prices. On the former, we think that food prices will increase due to the pent up demand associated with the Easter festival amidst low domestic food production occasioned by the planting season. On the latter, pressure will likely resurface in the core index as energy prices remain relatively high.

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