July 15, 2022/Cordros Report
In our May inflation note (see report: Unfavourable Base Effects to Stoke Inflationary Pressures in the Near Term), we projected headline inflation will notch higher in June amidst the base effects from the prior year. In addition, our prognosis was hinged on (1) the high food demand-supply gap as planting season was underway, (2) PMS shortages, and (3) elevated diesel and gas prices. Consequently, in line with our expectations, the headline inflation rose by 89bps to 18.60% y/y in June – the highest print since January 2017 (18.72% y/y). The outturn is in line with Cordros’ estimate (18.61% y/y) and 10bps higher than Bloomberg’s median consensus estimate (18.50% y/y). On a month-on-month basis, consumer prices increased by 4bps to 1.82%.
As we envisaged, food inflation maintained its uptrend for the fifth consecutive month, rising by 4bps to 2.05% m/m in June (May: 2.01% m/m). The increased food prices were consistent with the (1) lingering food demand-supply gap exacerbated by persistent legacy constraints (security, high input costs), which further limited farmers’ engagement in their typical activities, (2) high global food prices worsened by the Russia-Ukraine conflict, and (3) passthrough impact of increased transport costs. Moreover, the preceding outweighed the impact of green harvest in the southern part of the country during the review period.
Elsewhere, core inflation (+85bps to 15.75% y/y) rose to its highest level since February 2017 (16.01% y/y) as the existing factors stoking non-food prices remain dominant in the review period. Accordingly, price pressures were broad-based across all the core inflation sub-baskets, with notable pressures seen across the Utilities (+76bps to 14.61% y/y), Transport (+58bps to 16.97% y/y) and Education (+53bps to 15.49% y/y) sub-baskets. However, on a month-on-month basis, core inflation moderated by 32bps to 1.56% (May: 1.87% m/m) despite prices increasing across 96.1% of the sub-baskets that constitute the core inflation.
Overall, we forecast the headline inflation to settle at 1.84% m/m in July, with the corresponding base from the prior year translating to a 107bps increase in the y/y inflation rate to 19.66%.
