Across the sub-indices, food inflation rose the fastest, continuing its 6-months steady rise as it expanded by 110bps to print at 23.1% y/y in Aug-2022, from 22.0% y/y in Jul-2022. The surge in food prices can be attributed to legacy inhibitions to food supply due to the rising cost of importing fertilisers, increase in the cost of farm inputs (seeds and machinery), unabating insecurity challenges in food-producing states and the presence of supply-chain bottlenecks. In tandem, the core inflation sub-index rose by 94bps to print at 17.2% y/y in Aug-2022, from 16.3% y/y in Jul-2022. In line with the current elevated inflationary environment, all the components of the core inflation basket trended higher m/m. The surge in core inflation continues to reflect the impact of rising global energy costs as higher diesel and gas prices weigh pressures on Transport costs, Housing & Utility costs, and Operational costs in the Educational and Health sectors.

We maintain expectations of upward pressures on inflation for the rest of the year. Food inflationary pressures are expected to persist due to weaker farm output during the harvest season (from September) owing to higher farming costs and reduced farming population. For core inflation, we expect global energy costs to remain elevated and the persistent FX pressures to impact the cost of imported and manufactured goods. That said, we project that the inflation rate will rise to 21.2% in Sep-2022. We believe this will be a significant consideration for the rate decision by the MPC at its meeting next week. We expect continued rate hikes to support asset class switches to the fixed income space. Thus, we advise investors and fund managers to lock in funds in the short-term, following a rising yield environment.