CPI Report: Headline Inflation Remains Elevated

The upward pressure on domestic consumer prices lingered for the 13th consecutive month as headline inflation rose to 13.7% y/y in September 2020 from 13.2% in August as disclosed in NBS’ Consumer Price Index report. This is the highest level of headline inflation since February 2018, driven by a sharp m/m increase at a 39-month high of 1.5% from 1.3% in August.

The unrelenting rise in food inflation to a 31-month high of 16.6% y/y from 16.0% in August remains the main driver of inflation. On a m/m basis, food inflation spiked to 1.9% from 1.7% in August, the highest since July 2017. Meanwhile, imported food inflation was unchanged at 16.4% y/y, although the m/m movement increased to 1.5% from 1.3% in August. Core inflation rose mildly by 8bps to 10.6% y/y from 10.5% in August, the highest level since June 2018. This was driven by a moderate m/m increase in the core index by 0.9% from 1.1% in August. 

The trend in consumer prices during the month reflects weakness in the agriculture sector as the harvest season should normally drive moderate food price increases. We believe harvests have been challenged by the disruption to the agriculture value chain brought by the pandemic during the planting season, unfavourable weather patterns and persistent insecurity. Similarly, the recent and existing FX restrictions around food imports as well as the removal of energy subsidies and currency devaluation have negatively impacted consumer prices. In the subsequent months, we expect sustained pressure on consumer prices, especially given the troubling state of food insecurity.