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CPI inflation eases to 2.7 pct in July

 Inflation in the consumer price index (CPI) eased from 2.9 percent year-on-year in June, to 2.7 percent y/y in July, amid a slowdown across most sectors. Core inflation has outstripped the headline inflation rate for three months now on housing price pressures. Higher international food prices are expected to apply some upward pressure on the overall inflation rate later this year. However, the ongoing softening in some components, particularly in the clothing and furnishing sectors, will help keep any significant rises at bay. Headline inflation is projected to log in an average of 3.0 percent for this year. 

Food price inflation maintained its downward trend in July, edging down from 2.5 percent y/y in June to 2.0 percent y/y in July. Food price inflation has so far logged in an average rate of 3.1 percent y/y, since the beginning of this year. This rate is comparatively lower than the 4.3 percent y/y average that was witnessed during the same period last year. The relatively lower international food prices played a significant role in keeping local food inflation more subdued this year.
 
Stricter price controls during Ramadan (June — July), when prices typically jump, may have also played a role in keeping local food inflation down. However, local food price inflation is set to reverse its downward trend later this year, on the back of higher international food prices. Inflation in housing services appears to be stabilizing. This will help keep core inflation and thereby headline inflation at ease. Changes in the housing component are only tallied once every three months. In the most recent update, inflation in housing services edged down slightly to 4.4 percent y/y.
 
Apart from the short lived dip between December 2013 and February of this year, housing services inflation has remained range bound between 4 percent and 5 percent y/y since June 2013. It is projected to stabilize within this range at least until the end of this year. Stabilization in the housing component will keep upward pressures in the furnishings & household maintenance sector at bay. The furnishings component has logged in an average inflation rate of 5.0 percent y/y since the start of this year; this is double the rate that was seen during the same period last year.
 
However, upward inflationary pressures from the furnishings sector appear to have subsided recently, amidst some stability in the housing services sector. Inflation in the furnishings sector continued to ease in July, and currently stands at 4.3 percent y/y. The clothing & footwear component also continued its downward trend, slowing down from 3.0 percent y/y in June to 2.2 percent y/y in July. Inflation in the restaurants and hotels segment remained at 2.5 percent little affected by Ramadan and the Eid holiday.

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