March 15, 2023/Cordros Report
The February 2023 inflation report recently released by the National Bureau of Statistics (NBS) showed that consumer prices maintained their uptrend for the second consecutive month after the moderation witnessed in December 2022. Precisely, the headline CPI increased by 10bps to 21.91% y/y (January: 21.82% y/y). The preceding was due to an increase in the food basket (+3bps to 24.35% y/y) amidst a positive surprise in the core basket (-31bps to 18.85% y/y). The inflation tally was 20bps lower than Cordros’ estimate (22.11% y/y), but 11bps higher than Bloomberg’s median consensus estimate (21.80% y/y). However, on a month-on-month basis, the headline inflation eased by 16bps to 1.71% (January: 1.87% m/m).
Food inflation maintained its uptrend, rising marginally by 3bps to 24.35% y/y in February relative to January (24.32% y/y). We are unsurprised that food prices remain elevated given that supplies are usually diminished soon after the main harvest season, leaving the market susceptible to higher prices as food demand remains high relative to supply. In addition, we attribute the higher food prices to the lingering increase in transport costs induced by intermittent PMS scarcity. Notably, transport cost has a strong positive correlation (0.73) with food prices. Consequently, the farm produce (+41bps to 24.34% y/y) and imported food (+4bps to 18.53% y/y) prices increased, neutering the slowdown in the processed food (-7bps to 24.35% y/y) sub-basket. However, on a month-on-month basis, food prices moderated by 18bps to 1.90% (January: 2.08% m/m). We note that the moderation this month mirrored price moderation in the processed (-32bps) and imported (-9bps) food sub-baskets.
Surprisingly, the core inflation recorded its first moderation in 11 months, as it eased by 32bps to 18.84% y/y. Analysing the breakdown provided, we note that the sub-baskets that moderated in the review period only contributed 23.6% to the core inflation basket. On a month-on-month basis, the core inflation mirrored the year-on-year increase, easing by 76bps to 1.06% m/m. To wit, prices moderated across the sub-baskets safe for the health sub-basket which rose by 5bps to 1.63% m/m. Notably, we suspect that the availability of PMS relative to January must have positively impacted the moderation in transport prices (-35bps to 1.64% m/m) in February.
All in, we look for a 1.65% m/m headline inflation in March, translating to an 11bps slowdown in y/y inflation rate to 21.80%.
