Domestic consumer prices surprised positively as the pace of increase in headline inflation in September is the slowest since March (+21bps), likely reflective of the initial impact of the primary harvest season.
According to the National Bureau of Statistics (NBS), the headline inflation rose by 25bps to 20.77% y/y in September (August: 20.52% y/y) – its highest print in 17 years. Parsing through the breakdown provided, the food and core inflation settled higher at 23.34% y/y and 17.60% y/y, respectively, amid the low statistical base effect from the prior year. The outturn is 41bps below Cordros’ estimate (21.18% y/y) and 23bps lower than Bloomberg’s median consensus estimate (21.00% y/y). On a month-on-month basis, consumer prices eased by 41bps to 1.36% – the lowest print since November 2021 (1.08% m/m).
Food inflation maintained its downtrend for the third consecutive month, easing by 54bps to 1.43% m/m in September (August: 1.98% m/m) – its lowest reading in ten months. In our opinion, the moderation reflects the early impact of the harvest season, which kicked off in September, even as the water release from dams has increased flooding incidents across most states. Accordingly, prices of Farm produce declined to their lowest level since November 2021 (0.93% m/m), settling at 1.18% m/m – 73bps lower than in August (1.91% m/m). At the same time, prices also moderated in the Processed food (-49bps to 1.51% m/m) while the dollar-strength ensured Imported food prices rose slightly by 2bps to 1.40% m/m. However, on a year-on-year basis, food prices rose by 22bps to 23.34% (August: 23.12% y/y), given price increase across the Farm produce (+13bps to 23.34% y/y) and Processed food (+24bps to 23.34% y/y) sub-baskets. The higher y/y reading primarily reflects the impact of the low statistical base effect from the prior year amid the lingering existing challenges impeding food production and supply.
Elsewhere, the core inflation was unchanged at 1.59% m/m suggesting that the impact of energy cost pressures might have started slowing down, although currency pressures remain entrenched in the economy amid the build-up of campaigns for the 2023 general elections. Importantly, we highlight that price pressures moderated across the Utilities (-10bps to 1.29% m/m), Transportation (-9bps to 1.55% m/m), and Clothing & footwear (-72bps to 0.81% m/m) sub-baskets. The core index rose by 40bps to 17.60% on a year-on-year basis, primarily driven by the low base effect from the prior year.
Overall, we forecast consumer prices to rise by 1.43% m/m in October, translating to a year-on-year print of 21.31%.
