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October Inflation Review - Inflation moderates slightly, trend little changed

Registering in line with Consensus estimate of 15.9% year-on-year (y/y), Headline Inflation eased slightly in October (September: 16.0%), tracking above Vetiva estimate of 15.8% y/y. Across the sub-indices, both Food Inflation and Core Inflation came in flat y/y at 20.3% and 12.1% y/y respectively. The month-on-month (m/m) trend was very similar to September’s, with the All-Items Index, Food index, and Core index increasing by 0.76%, 0.85%, and 0.76% respectively in October (September: 0.78%, 0.87%, 0.80%).                                             

Food prices have been a sore point for inflation in 2017, rising 17.7% ytd on the back of multiple supply disruptions in the earlier part of the year. The pressure seems to be waning now – m/m inflation has fallen from a high of 2.54% in May to 0.85% in October. However, pressure is coming from imported food items as imported food inflation rose for the fourth consecutive month – from 14.8% y/y in September to 15.3% y/y in October. We note that resurgent imported food inflation comes despite relative currency stability in the preceding months, and moderation in global food prices in October – FAO Food Price Index at its lowest value since June.                                           

Our overall inflation outlook is little changed from the previous month, and we maintain our expectations over the pace of inflation moderation in the near-term. However, we have factored in greater pressure from energy prices at year-end as this would have an outsized effect on transport and production costs. In all, we raise our inflation forecasts for November and December to 15.8% and 15.6% respectively from 15.7% and 15.4%, translating to average 2017 inflation of 16.6% (Previous: 16.5%).