May Inflation: Again, core inflation anchored CPI numbers
Headline inflation for the month of May printed at 12.40% YoY, 3bps shy of our estimate of 12.43% and 4bps above the prior month of 12.36% YoY, spurred by increases in both food and core inflation. Unsurprisingly, core inflation anchored the increase for the second consecutive month, expanding 14bps to 10.12% YoY reflecting increases across all sub-indices. As stated in our prior inflation report, we believe the rise in core inflation mirrors the pass-through impact of currency depreciation, closure of the border and restrictions in movements which adversely affected prices. This was evidenced across sub-indices including health (+39bps), Transport (+31bps), Furnishing (+6bps), Clothing (+6bps) amongst others. For us, we believe demand for health services as well as the elevated transportation cost – a fallout of restrictions in movements – spurred the sharp rise in health and transport inflation. Meanwhile, HWEGF continued to echo lower energy prices, rising marginally by 1bp to 7.77% YoY. Elsewhere, food inflation rose slightly by 1bp to 15.04% YoY, as uptick in processed food (+40bps to 15.1% YoY) and imported food (+2bps to 16.26% YoY) outweighed declines in farm produce (-3bps to 15.04% YoY). Despite increased demand owing to Ramadan season, carryover stocks from off season harvest kept market supplies above average level relative to the prior year, according to FEWSNET.
A glance at the month on month numbers revealed headline inflation increased by 14bps to 1.17% MoM and 2bps shy of our estimate of 1.19% MoM. In stark contrast to the annual numbers, food inflation saw bulk of the increases, expanding 25bps to 1.42% MoM while core inflation dipped 5bps to 0.88% MoM. For context, a 35bps increase in farm produce anchored the rise in food inflation as restrictions in movements and the impact of higher transportation cost on food prices, was more significant in May, relative to April 2020. Surprisingly, declines in Furnishing (-2bps) and Alcoholic beverages (-2bps) outweighed increases in other core sub-indices.
We expect the continuous passthrough of currency depreciation, surge in transportation cost and the restriction in movements to keep headline inflation elevated. Against this backdrop, inflation for the month of June is expected to print at 12.63% YoY and 1.28% MoM.
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