Earlier, the National Bureau of Statistics (NBS) released the inflation figures for Sept-2020. Notably, the headline inflation rate rose from 13.22% y/y in Aug-2020 to 13.71% y/y – faster than our estimate of 13.51% and the highest since March-2018.
This was driven by a 1.48% jump in the month-on-month (m/m) changes in general prices (vs. 1.34% m/m in Aug-2020). Notably, price increases were observed across all components of the index with the cost of food being the major driver amid domestic supply shortages.
On a segmented basis, the food inflation sub-index rose from 16.0% y/y in Aug-2020 to 16.66% y/y in Sept-t2020. Food prices increased 1.88% m/m (vs. 1.67% in August). In our view, the pressure from the sustained shortfall in domestic food supply relative to the demand, continued closure of land borders and increased input cost fueled the increases in food prices during the period.
Elsewhere, the core inflation sub-index inched up to 10.58% y/y (vs. 10.52% y/y in Aug-2020) even as m/m pressure reduced to 0.94% (vs. 1.05% in Aug-2020). Notably, across the components of the core inflation sub-index, the highest increases were recorded in prices of Health and Transport services.
Looking ahead, we reiterate that the outlook for the headline inflation rate remains biased to the upside for the rest of the year despite the recent suspension of the service reflective electricity tariffs. Notably, pressures on the food inflation sub-index are likely to continue till the end of the year due to supply shortages, structural bottlenecks and currency market challenges.
Also, the ongoing social unrest across the nation which appears to be disrupting business activities is likely to leave a negative imprint on the headline numbers. Furthermore, high financial system liquidity in Q4-2020 without a commensurate increase in economic output might stoke the core index higher.
Overall, we project m/m inflation rate for Oct-2020 to come in at 1.3%, largely driven by the upward adjustment in electricity tariffs seen in Sept-2020 while expectation for a relatively improved harvest and government’s relaxation of its stringent policies of importation of Agric inputs such as maize should cool the pressure on food prices.
Thus, our headline inflation rate projection for Oct-2020 is estimated to come in at 13.97% y/y.
United Capital Plc Research