The National Bureau of Statistics (NBS) recently released the March 2023 inflation report, showing that the headline inflation increased by 13bps to 22.04% y/y (February: 21.91% y/y) – the highest print since September 2005 (24.32% y/y). Parsing the breakdown provided, we highlight that food prices rose by 10bps to 24.45% y/y while the core inflation (+102bps to 19.86% y/y) increased to its highest level since May 2004 (23.43% y/y). The inflation print was 24bps higher than Cordros’ and Bloomberg’s median consensus estimate (21.80% y/y). On a month-on-month basis, the headline inflation resumed its uptrend, rising by 15bps to 1.86% (February: 1.71% m/m).
After the moderation witnessed in the prior month, food inflation resumed an uptrend in March, rising by 16bps to 2.07% m/m. We believe the higher food prices were in line with the increase in food demand as consumers stock up for the Ramadan period. Adding to the topside impetus were the (1) below-historical average cultivation activities limiting food supply, and (2) passthrough effects of increased transport costs. Consequently, the higher prices of processed (+31bps to 2.12% m/m) and imported (+4bps to 1.45% m/m) food were enough to neuter the moderation in the farm produce (-33bps to 1.87% m/m) sub-basket. On a year-on-year basis, food inflation rose to its highest level since October 2005 (24.56% y/y) settling at 24.45% y/y (February: 24.35% y/y).
Elsewhere, the core inflation increased by 78bps to 1.84% m/m (February: 1.06% m/m). We suspect that the electioneering spending was the primary driver of the core inflation in the review period, while higher transport costs also contributed to the price pressures in the core basket. Accordingly, price pressures were most significant in the transport (+53bps), recreation (+21bps), education (+16bps), communication (+15bps), clothing & footwear (+8bps), and utilities (+6bps) sub-baskets. On a year-on-year basis, the core inflation rose to its highest level since May 2004, increasing by 102bps to 19.86%. We attribute the increase primarily to the (1) unfavourable base effects from the prior year and (2) increased electioneering spending.
