June 16, 2022/CSL Research

In May 2022, the headline inflation rate increased to 17.71% y/y, 0.89% higher than 16.82% recorded in April 2022 but 0.22ppts lower compared to 17.93% recorded in May 2021. Increases were recorded in all COICOP divisions that yielded the Headline index. Month-onmonth basis, the Headline inflation rate increased to 1.78% in May 2022, also 0.02ppts higher than the 1.76% recorded in April 2022. The authorities raised the Monetary Policy Rate (MPR) from 11.5% to 13.0%, in a surprising move last month. This, according to the committee, was to moderate inflationary pressure, among other reasons.

Amidst the continued rise in food prices, the food index rose to 19.50% y/y in May 2022, 1.13% higher than 18.37% recorded in April 2022 but down 2.78% compared with 22.28 reported in May 2021. The rise in the food index according to the bureau was driven by increases in prices of bread and cereals, food products, potatoes, yam, and other tubers, wine, fish, meat, and oils. Month-on-month, the food sub-index increased to 2.01% in May 2022, up 0.01 percent points from 2.00% recorded in April 2022. We anticipate a mild respite to increasing food prices when the harvest season begins in September. However, the impact of the Russian- Ukraine war on the prices of commodities like wheat and oil will continue to pressure food inflation.

Core inflation of 14.90% y/y was reported in May 2022; 0.72% higher than 14.18% recorded in April 2022 and 1.75% higher than 13.15% recorded in May 2021. Month-on-month, the core sub-index increased to 1.87% in May 2022. This is up by 0.65% from 1.22% recorded in April 2022. The highest increases were recorded in prices of Gas, Liquid fuel, Garment, Solid fuel, Cleaning, Repair and Hire of clothing and Passenger transport by road. The growth in the core index continues to reflect the impact of the increased cost of diesel and gas, which we believe will continue to pressure core inflation. Again, election spending, which is likely to result in huge liquidity injections into the economy for the rest of the year, poses a threat to price stability.

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