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March 2023 Inflation review - Inflation rises for the third consecutive time this year

Inflation rises for the third consecutive time this year

In March, headline inflation rose to 22.04% y/y (Feb’23: 21.91% y/y) bucking consensus expectation of a slowdown. While we anticipated that the high base from the previous year would allow for cooler figures in March, the lingering impact of the cash crunch and energy pressures pushed prices higher. Month-on-month, headline inflation rose to 1.86% m/m (Feb’23: 1.71% m/m), mainly due to higher food prices in March.

 

 

Religious festivities propel food inflation further

In March, food inflation increased by 10 basis points to 24.45% y/y (Feb'23: 24.35% y/y). Higher farmgate prices (+35% y/y) drove the increase, with oils, bread and cereals, potatoes, yams and other tubers, fish, fruits, meat, vegetables, and spirits rising the fastest. Similarly, food inflation increased to 2.07% m/m in March (Feb'23: 1.90% m/m) due to frontloading ahead of the Ramadan and Easter.

 

Core inflation reverts to trend

Following a slowdown in February due to a relatively stable exchange rate, core inflation reversed to trend, rising to 1.84% m/m in March (Feb'23: 1.06% m/m). When annualised, core inflation rose to 19.86% y/y (Feb’23: 18.84% y/y). The highest pressures were exerted on the prices of gas, fuel, transport, medical devices, and vehicle spare parts, underscoring increased energy and currency pressures.

 

Mixed pressures could keep inflation on the rise

In April, we see room for a further rise in inflation to due to a combination of pressures affecting both the food and core segments. For the food segment, we believe that the increased demand from religious activities (Easter and Ramadan festivities) could prop demand for food and impact the month-on-month figure. The core segment may be affected by persisting energy and currency pressures, despite increased availability of cash following the reintroduction of previously outlawed old notes. With this in mind, we expect inflation to hit 22.18% y/y this month.

 

For the rest of the year, we anticipate that the scheduled withdrawal of fuel subsidies by half year could put pressure on consumer prices in the coming months. As a result, headline inflation could average 23.11% y/y in 2023 (2022: 18.76% y/y).