October 2017 inflation: Data Reaction & November Outlook


The National Bureau of Statistics (NBS) released the inflation rate for the month of Oct-17 today, with Headline inflation moderating to 15.91% year-on-year (vs. United Capital Research projected 15.88% y/y). After trending within a tight range of 16.3%-16.0% y/y for four straight months, the y/y inflation rate bettered previous month’s performance, easing by 7bps from 15.98% y/y in Sept-17.

This represents the 9th successive decline in the headline rate since January 2017. On a month-on-month (m/m) basis, inflation rate increased 0.8%, dropping 2bps from Sept-17, 0.78%, representing the 5th consecutive decline and averaged 1.3% YTD, as pressure on food prices slowed. The food inflation sub-index rose 20.31% y/y, down fractionally from 20.32% recorded in September 2017. On the other hand, imported food sub-index increased 0.5% to 15.1% y/y in Oct-17 while the core inflation index rose 2bps to 12.1% y/y.

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According to the NBS, the major items responsible for the sustained pressure on the food index albeit at a slower rate were prices of bread and cereals, meats, oils and fats, coffee tea & cocoa, milk, cheese & eggs, vegetables and fish. In the core sub-index, higher prices of clothing materials & other articles of clothing, solid and liquid fuels, garments, passenger transport by air, shoes & other footwear, furniture & furnishing, maintenance and repair of personal transport equipment and other services related to personal transport equipment, accounted for the increase. For the headline index, the highest increases were observed in the prices of potatoes, yam & other tubers, meat, oil & fats, milk, cheese and egg, bread & cereals, fish, vegetables and coffee, tea & cocoa.

Inflation Outlook
A thorough analysis of the CPI numbers for the month of October indicated that the moderation in headline inflation rate to 15.91% was broadly driven by a surprise reduction in the food sub-index which slowed to 20.3% y/y and declined 2bps m/m in Oct-17. Additionally, we observed that despite y/y marginal increase in core inflation sub-index to 12.1% in Oct – 17, the m/m component of the sub-index fell for the fourth consecutive month to 0.8% in Oct-17, further supporting the slowdown in the headline rate. Overall, the slowdown in food sub-index is an indication that pressure on food prices continues to reduce. The continued stability in the FX market, as well as expectation of stable harvest season, should see inflation trend further down in the coming months. We, therefore, see the headline inflation number moderating to 15.70% in November.

United Capital Research