The Consumer Price Index report published recently showed that headline inflation rose to a 25-month high of 12.4% y/y in May 2020, from 12.3% in the prior month. This was despite the sustained upward pressure on consumer prices as headline inflation rose 1.2% m/m from 1.0%, the highest since June 2018.
Notably, core inflation rose faster by 14bps to 10.1% y/y from 10.0% in April 2020, the highest since July 2018. However, core inflation increased 5bps slower at 0.9% on m/m basis, the first moderation since February 2020. Meanwhile, food inflation was little changed at 15.04% y/y from 15.03% in the previous month. We suspect that this is due to a high base as there was a sustained surge in m/m inflation to 1.4% from 1.2% in April 2020. This is the highest m/m rise since August 2018 and it suggests that underlying consumer price pressure remains strong. Accordingly, it is clear that headline inflation continues to be driven by changes in food prices.
Looking forward, we expect an uptrend in inflation as consumer prices more fully reflect the lean agriculture season, the recent VAT adjustment, exchange rate devaluation, the resumption of more economic activities and energy (fuel & electricity) price adjustments.