August 2020 CPI Report: Headline Inflation Soars to a 29-month high of 13.2%

There was persistent pressure on consumer prices in August 2020 as headline inflation rose to 13.2% y/y from 12.8% in July, according to the Consumer Price Index (CPI) report published this week. This is the 12th consecutive rise in inflation and the highest level since March 2018. The sharp increase in headline inflation was driven by a faster m/m inflation, which was up 10bps to 1.3%, the highest since June 2017.

The m/m rise in headline inflation in August 2020 was driven by pressure from the food index. Food inflation maintained its relentless rise, increasing to 16.0% y/y from 15.5% in July 2020 – the highest since March 2018. This was driven by the m/m increase in the food index to a 38-month high of 1.7% from 1.5% in July. Imported food inflation also rose to 16.6% in August from 16.5% in July, although the m/m movement was unchanged at 1.3%. Meanwhile, there was strong pressure in the core index in August as the m/m core inflation rose to a 26-month high of 1.1%, taking core inflation to 10.5% y/y from 10.1% in July 2020 - the highest since May 2018.

We attribute the pressure on consumer prices in August partly to disruptions in the agriculture value chain due to COVID-19 and persistent insecurity. Likewise, the removal of energy subsidies as well as exchange rate challenges drove inflationary pressures on consumer goods and services during the month. Looking ahead, higher food prices remain the major pressure point on domestic consumer prices as well as weather challenges and insecurity. Also, we anticipate additional pressures from the recent hike in fuel prices and electricity tariffs.