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September 2016 Inflation - CPI reaches 17.9%

Yearly inflation rose to 17.9% in September, slightly above Vetiva estimate of 17.8% as a result of an unanticipated uptick in monthly Core Inflation, and below Bloomberg Consensus (18.0%). The decelerating monthly inflation trend that began in June persisted further in the last month as the monthly rise in the Consumer Price Index (CPI) slowed to 0.8%, the lowest this year. Looking at the two sub-indices however, we get contrasting images. Whereas month-on-month (m/m) Food inflation (0.8%) recorded the slowest pace so far this year – still up 16.6% y/y, m/m Core inflation reversed recent trend to register higher at 1.0% (August: 0.9%). In fact, on a weighted basis, Core inflation contributed more to monthly inflation than Food, a return to a 4-month trend that was temporarily broken in August. This rise brought Core inflation to 17.7% y/y in September (August: 17.2%).

Despite the slight rise in monthly Core inflation, the broad trend suggests a sustained easing in inflationary pressures in the country. However, this may be contingent on continued stability in the exchange rate and with persistent dollar scarcity (reflected in a 39% parallel market premium in September), we expect monetary policy to remain alert to a change in inflationary trend. We have revised our October forecast to 18.1% (Previous: 18.0%) to reflect the rigidity in monthly Core inflation whilst maintaining our 2016 average estimate of 15.5%.