Inflation in consumer prices eased in February on the back of a slowdown across most components. Headline inflation eased from 3.3 percent year-on-year (y/y) in January to 3.1 percent in February. Core inflation (which excludes food costs) also edged slightly lower to 2.7 percent y/y during the same period. We expect inflation across most segments to remain subdued in the near to medium-term. As a result, we project annual average inflation to moderate from 3.3 percent in 2015 to 3.0 percent in 2016.
Inflation in local food prices eased for the first time in five months. Food inflation fell from 5.1 percent y/y in January to 4.8 percent in February amidst a slowdown across most of its subcomponents. Global food prices continued to fall during the same period, but at a much lower rate.
According to the Commodity Research Bureau’s global commodity index, international food prices fell -4.3 percent y/y in February versus -6.8 percent y/y in January. We may see global food inflation edge back on to positive territory in the medium term. This would apply some upward pressure on local food inflation but that is not expected this year.
Inflation in furnishings & household maintenance maintained its easing trend. Inflation in clothing & footwear remained in negative territory in February. Inflation in furnishings slowed from 2.6 percent y/y in January to 2.1 percent in February. Clothing & footwear prices continued to decline in February, falling by -0.6 percent y/y. The stronger dinar and further and/or extended seasonal promotions continue to keep costs low in this segment.
The transportation and recreation & culture segments have also been witnessing price declines. Transportation costs declined by -0.6 percent y/y in February, mainly on the back of falling repair and transport service costs.
Prices in the recreation & culture segment fell for the ninth consecutive month in February in tandem with falling audio & visual and recreational equipment costs. The fall in prices in this component may also be attributed to the stronger dinar, given that most of its items are imported.
Inflation in the ‘other goods & services’ segment remained subdued in February. Inflation in this component, which mostly reflects the prices of imported goods such as personal care products and jewelry, has also maintained its softness due to the stronger local currency (except against the US dollar).
Inflation in wholesale prices eased in the final quarter of 2015, on the back of lower gains in manufacturing, and agriculture, livestock & fish prices. Latest data reveal that wholesale price inflation was at 2.2 percent y/y in 4Q15 in line with subdued pressure on retail prices ahead.