Latest details according to the National Bureau of Statistics (NBS) showed that consumer prices rose by 105bps to 19.64% y/y in July (June: 18.60% y/y) – the highest print since September 2005 (24.32% y/y). Parsing through the breakdown, price pressures were significant across the food (+141bps to 22.02% y/y) and core (+51bps to 16.26% y/y) baskets. The print is in line with our prognosis in our June inflation report (Inflationary Pressures Remain Biased to the Upside). Precisely, the outturn is 2bps shy of Cordros’ estimate (19.66% y/y) and 24bps higher than Bloomberg’s median consensus estimate (19.40% y/y). On a month-on-month basis, headline inflation settled at 1.82%.
Predictably, food inflation (22.02% y/y vs June: 20.60% y/y) rose to its highest level since May 2021 (22.28% y/y). The increased food prices were primarily driven by the unfavourable base from the prior year’s corresponding period. Asides from that, the elevated food prices also mirrored the spillover effect of increased transport costs on food prices and lingering currency pressure on import costs. Consequently, price pressures were significant across the farm produce (+150bps to 22.39% y/y), processed food (+139bps to 21.91% y/y) and imported food (+7bps to 17.91% y/y) sub-baskets. Notably, we highlight that imported food prices are at their highest levels since March 2017 (18.14% y/y). On a month-on-month basis, food prices moderated slightly by 1bp to 2.04% (June: 2.05% m/m). The moderation was primarily driven by the impact of the green harvest, which exerted downward pressure on the prices of farm produce (-15bps to 1.86% m/m), offsetting the increase in processed food (+4bps to 2.09% m/m) sub-basket.
Elsewhere, core inflation (+51bps to 16.26% y/y) rose to its highest level since January 2017 (17.87% y/y) as the existing factors stoking non-food prices remain dominant in the review period. Accordingly, price pressures remain broad-based across all the core inflation sub-baskets, with notable pressures seen across the utilities (+67bps to 15.28% y/y), transport (+60bps to 17.58% y/y), education (+51bps to 16.01% y/y) and clothing & footwear (+40bps to 17.73% y/y) sub-baskets. Notably, utilities and transport prices are at their highest levels since April 2017 (16.05% y/y) and November 2016 (17.64% y/y), respectively. On a month-on-month basis, the core inflation mirrored the year-on-year increase, rising by 20bps to 1.75% m/m.
Overall, we expect the pressure on consumer prices to remain skewed to the upside. Sequentially, we forecast the headline inflation to settle at 1.76% m/m in August, translating to an 87bps increase in the y/y inflation rate to 20.52%.
