Inflation rate ticks higher at 3.2% in October

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Inflation in consumer prices was just a tick higher in October, rising from 3.1% year-on-year (y/y) in September to 3.2% y/y. Inflation across most components remained broadly stable; clothing & footwear inflation appears to have gained the most momentum on a month-on-month basis.

Core inflation (which excludes food items) also saw a slight uptick, rising from 2.8% y/y to 2.9%. Food price inflation came in slightly lower against a backdrop of declining global prices. With inflation in most components set to remain in-check until the end of 2015, we expect annual inflation to average close to 3.4% in 2015, before easing to 3% in 2016.

Inflation in local food prices slowed slightly from 4.4% y/y in September to 4.3% in October, as global food prices continued to decline. According to the Commodity Research Bureau’s global commodity index, international food prices fell by around 13% y/y in October. Given the ongoing weakness in international food inflation, we expect upward pressures on local food inflation to be limited in the near-to-medium term.

Inflation in housing services was unchanged from September’s 5.7% y/y reading. Inflation in this segment (a bulk of which is made up of housing rents) 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 recede over the following months.

Inflation in furnishings & household maintenance continued to ease and clothing & footwear prices remained in decline. Inflation in furnishings & household maintenance came in marginally lower in October, at 2.5% y/y. Clothing & footwear inflation appears to have bottomed out; nonetheless prices in this segment continued to decline for the seventh consecutive month. Inflation in clothing & footwear costs is seeing a large correction, following a high base around the same period last year. The stronger dinar has helped keep inflationary pressures in this segment down, especially as most items are imported.

Inflation in the ‘other goods & services’ segment also maintained its downward trend in October. Inflation in this segment, which includes prices of personal care products and jewelry and certain business charges, continues to see a downward correction. Given that a bulk of the items in this component is imported, the slowdown can also be explained by the stronger dinar.

Wholesale price inflation eased in the third quarter of this year, mainly as upward inflationary pressures from its manufacturing component subsided. Inflation in the wholesale price index (WPI), updated quarterly, fell from 3.4% y/y in June (its last update) to 2.6% in September, as a slowdown in inflation in manufacturing was offset by inflationary gains in agriculture, livestock & fishing, and mining & quarrying. The agriculture, livestock & fishing component gained some ground in 3Q15 on the back of a hike in fish & seafood prices during the same period. However, inflation in this segment is forecast to subside in 4Q15 after fish & seafood prices were lowered.

Inflation in the WPI is forecast 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 3.4% forecast in 2015.

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