NOVEMBER 2017 INFLATION: DATA REACTION & OUTLOOK

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The National Bureau of Statistics (NBS) recently released the inflation rate for the month of Nov-17, with Headline inflation moderating fractionally to 15.90% year-on-year. This was 0.01 percent points lower than the rate recorded in October (15.91%), making it the tenth consecutive decline in headline year on year inflation since January 2017.

On a month-on-month (m/m) basis, inflation rate increased 0.8%, adding 2bps from Oct-17’s 0.76%, representing the first m/m increase after five consecutive m/m contraction in headline inflation since May-17. The food inflation sub-index rose 20.30% y/y, down fractionally from 20.31% recorded in October 2017. On the other hand, imported food sub-index increased 0.4% to 15.8% y/y in Nov-17 while the core inflation index rose marginally by less than 1bp to
12.2% y/y.

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, and fish. In the core sub-index, higher prices of motorcycles, bicycles, glassware & tableware, hospital & medical services, spirits, household textiles, insurance, and accommodation services, accounted for the increase. For the headline index, the highest increases were observed in the prices of oil & fats, milk, cheese & egg, bread & cereals, coffee, tea & cocoa and fish.

Inflation Outlook

For the first time in five straight months, month-on-month inflation increased. This is attributable to seasonality effects as the year comes to an end. Recent gains in the Agric Sector, especially in relation to rice production should, however, go a long way to counterpoise pressure on food prices going forward. We see inflation sustaining the recent downtrend in December despite usual yuletide spending as our model estimate puts the headline rate at 15.81% even if m/m inflation rate rises sharply to 1.0% in Dec-17 (vs. 0.83% average from Aug-Nov-17). Looking ahead, we expect headline inflation to moderate faster in H1-2018 if m/m inflation stays below 1.0%.

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