Another Slowdown In Headline Inflation

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The latest report from the NBS has headline inflation y/y at 14.3% in February. This is the thirteenth successive monthly slowdown, and by a welcome 80bps on this occasion. The driver was a decline in food price inflation from 18.9% to 17.6% y/y.

Core inflation slowed considerably to 11.7% from 12.1% y/y. Our expectation, shared with wire services, was 14.4% y/y for the headline rate on base effects.

  • The headline rate increased by 0.78% m/m in February compared with 0.76% recorded in the previous month. The m/m rate remains below 1.0%, indicating some level of price moderation.
  • Food inflation recorded a visible dip (by -133bps). However, supply-side constraints still exist with poor logistics channels and farmers’ preference to export as opposed to supply domestically. These continue to contribute to the high food price inflation rate.
  • Imported food prices increased to 16.1% y/y from 16.3% in January. On a m/m basis, it picked up marginally to 1.3% from 1.2%. Since mid-2017, fx has been available and the rate has been broadly stable. Therefore, we assume higher US dollar prices for products have fed into imported food prices.

Sources: National Bureau of Statistics (NBS); FBNQuest Capital Research
  • It seems the MPC will be unable to meet next week due to the same reason in January – a lack of quorum. Local media reports indicate that the Senate has decided to conduct the confirmation process for the President’s nominated MPC members. Given the steady slowdown in headline inflation, an assumption of a trimming of the policy rate this year is not far-fetched.
  • We see the headline rate falling again to 13.5% y/y in March.

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