Inflation expected to average 3.3% in 2015

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Inflation in consumer prices came marginally lower in November, easing from 3.2% year-on-year (y/y) in October to 3.1% y/y, as inflation in most components was either unchanged or remained steady. Core inflation (which excludes food inflation) also eased slightly, from 2.9% y/y to 2.8% during the same period. Subsequently, annual headline inflation is on track to average close to 3.3% in 2015, slightly higher than the 3% annual average in 2014. Inflation in local food prices was unchanged at 4.3% y/y in November; global food prices remained in decline.

According to the Commodity Research Bureau’s global commodity index, international food prices continued to fall, but at a slower rate of -8% y/y. Upward pressures on local food inflation are poised to be limited in the near-to-medium term, against a backdrop of weak global food prices. Inflation in housing services was unchanged from September’s 5.7% y/y reading. Inflation in this segment (primarily housing rent) witnessed strong gains over the past year, particularly in 4Q14 and 1Q15. It appears to have peaked in 2Q15 and we may see it continue to subside over the following months.

Inflation in furnishings & household was slightly higher in November and clothing & footwear prices continued to fall. Inflation in furnishings & household maintenance rose slightly from 2.5% y/y in October to 2.7% y/y in November. Prices in clothing & footwear fell for the eighth consecutive month. The stronger dinar continues to apply downward pressure in this segment, as most clothing and footwear items are imported (from non-dollar counties). Inflation in the ‘other goods & services’ segment also trended lower in November.

Inflation in this segment, which includes prices of items that are mostly imported — personal care products and jewelry and certain business charges — is also being weighed down by the stronger dinar. Inflation in the wholesale price index (updated once every quarter) is projected to be moderate in the near-to-medium term. This will help keep inflation in the consumer price index in check and lead to an annual average close to our 3.3% forecast in 2015, when the final numbers are out.

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