Ahun Insights’ Post

Headline Inflation – Sep’24 | Lowest Inflation read since Jan’21 Headline inflation 6.9%YoY for Sep’24 is the lowest reading since Jan’21. Housing index came in higher 21%YoY followed by Perishable Food Items Index at 20%YoY. Non-perishable food items carrying a weight of ~30% declined by 3.5%YoY. Core inflation (Urban) saw an uptick of 0.2%MoM & continued its disinflationary trend now at 9.3%YoY. Core inflation (Rural) decelerated to 12.1%YoY and 0.5%MoM. Headline inflation decreased by 0.5%MoM led by 1.38%MoM decline in Food and 0.6%MoM decline in housing.

AUGUST 2024 INFLATION RATE. According to the Consumer Price Index report released by the Bureau, the headline inflation rate eased to 32.15% in August 2024, while food inflation stood at 37.52% in the same month. “Looking at the movement, the August 2024 headline inflation rate showed a decrease of 1.25% points when compared to the July 2024 headline inflation rate,” the NBS stated. “However, on a year-on-year basis, the headline inflation rate was 6.35% points higher compared to the rate recorded in August 2023 (25.80%). “On a month-on-month basis, the headline inflation rate in August 2024 was 2.22%, which was 0.06% lower than the rate recorded in August 2024 (2.28%). This means that in August 2024, the rate of increase in the average price level is lower than the rate of increase in the average price level in July 2024.” The NBS said food inflation rate in August 2024 was 37.52% on a year-on-year basis, which was 8.18% points higher compared to the rate recorded in August 2023 (29.34%). Core inflation, excluding volatile food and energy prices, was 27.58% year-on-year, up from 21.15% in August 2023. This increase reflects higher costs in sectors such as housing, transportation, and medical services. Month-on-month core inflation stood at 2.27%, up from 2.16% in July. The average 12-month annual inflation rate ending August 2024 was 25.18%, marking a significant rise from the 19.18% recorded in August 2023.

Headline and Core Inflation: August 2024  Annual urban headline inflation ticked up to 26.2 percent in August 2024 compared with 25.7 percent in July 2024. In line with the recent fiscal consolidation measures, annual inflation outturns in August 2024 were mainly driven by non-food items, which increased by 24.4 percent compared with 22.9 percent in July 2024. In addition to their direct impact on the prices of regulated items such as fuel and public transportation, the recent fiscal measures passed through to the prices of certain services and retail items. Furthermore, the prices of pharmaceutical products continued to increase in August 2024, recording 4.4 percent on a monthly basis. Meanwhile, annual food inflation continued to decelerate, reaching its lowest rate in almost two years at 29.0 percent in August 2024 compared with 29.7 percent in July 2024.  Annual core inflation increased to 25.1 percent in August 2024 from 24.4 percent in July 2024. Despite the relatively stable prices of core food items, the passthrough of higher fuel prices to both services and retail items was reflected on monthly core inflation, which increased to 0.9 percent in August 2024 compared with negative 0.5 percent in July 2024 and 0.3 percent in August 2023.  Monthly urban headline inflation recorded 2.1 percent in August 2024 compared with 1.6 percent during the corresponding month in 2023, and 0.4 percent in July 2024. In addition to the impact of fiscal measures on non-food items, monthly outturns also reflected the seasonal increase in the prices of fresh vegetables as well as stable core food prices. Annual rural headline inflation recorded 25.0 percent in August 2024 compared with 24.7 percent in July 2024. Additionally, annual nationwide headline inflation1 increased to 25.6 percent in August 2024, up from 25.2 percent in July 2024.  #EGYPT #Inflation #Economy #Finance

Yesterday BBS reported inflation numbers for May 2024. CPI rose to 9.89% from 9.74% (April). Food inflation rose to 10.76% from 10.22% and non-food inflation fell to 9.19% from 9.34%. So why is inflation rising even though we have tightened monetary policy? The table below shows month-over-month (MoM) inflation along with year-over-year (YoY). Overall inflation fell 0.2% MoM. Overall food inflation fell 1% MoM. Non-food inflation rose 0.4% MoM, equating to an annualized rate of 4.9%. The YoY number looks high because there were months of higher inflation between May 2023 and May 2024. Overall BBS numbers for food inflation do not contradict EDGE calculations with alternate data sets directionally (we can still argue and debate the actual levels). The whole argument of hiking interest rates to tame inflation is like this 1. Higher interest rates can help stem the outflow of FX Reserves by slowing down the economy. Therefore we should see a more stable BDT driven by true market forces (not artificially fixed levels). 2. Lower future currency depreciation and lower purchasing power will help reduce inflation. Currency markets are indeed showing some signs of stabilization. But this is also subject to external forces such as energy prices etc. So we need to observe further to conclude anything definitively. Secondly, we must consider electricity price hikes and weather-related shocks while projecting inflation. Both of these are going to happen and may significantly slow down the rate at which inflation can come down. However, a slower decline in the inflation rate does not make the policy of higher interest rates wrong. The MoM decline in food inflation in May is simply an adjustment of the Ramadan and post-heat wave price hikes. The real results will be clearer around 6 to 12 months down the road once the new lending rates (~14%) start to come into effect.

The latest reading of inflation came in softer than expected, with price increases slowing to 3.3% over the past year. Food inflation slowed to 2.1%, with food at home price growth slowing to 1.0%. Inflation for food away from home continues to grow faster, increasing 4.0% in the last year. However, housing inflation remains sticky, accelerating to 4.6%, from 4.5% the previous month. Healthcare inflation also accelerated in May, with prices growing 3.1%, compared to 2.6% growth the previous month. Core inflation (less food and fuel) slowed to 3.4% from 3.6%. Services inflation also slowed last month to 5.2%, but it remains much higher than headline inflation. And supercore inflation (services less housing) accelerated to 5.0% from 4.9% the previous month. Overall, inflation continues to soften but some sectors show signs of reheating to higher levels. #cpi #inflation

Inflation (as measured by the Consumer Prices Index) rebounded slightly over the month (of December) to reach an annualised rate of 4.0% (up from 3.9%). A logical question might therefore be, will this rebound continue? To estimate how annualised inflation rates are likely to change in the future you need to: 1.    Understand how inflation behaved in the months set to drop out of the annualised inflation calculation in future (e.g. January 2023 will fall out of the annual inflation rate in the next inflation release on the 14th February). 2.    Estimate how month on month inflation will behave in the future. Focusing on the first point alone; In January 2023 monthly inflation was negative 0.6%. After that we saw high inflation across February, March and April 2023, with an average monthly inflation across these three months of 1.0%. This significantly increases the likelihood that annual inflation will increase again next month and then reduce over the following 3 months as the high inflation seen across February to April 2023 falls out of the annual inflation data. Even allowing for the higher levels of inflation seen in December (0.4% on a monthly basis), the last eight months inflation has averaged just under 0.2% a month, which equates to an annual rate of just over 2%. If this eight-month average continues then inflation will reduce to around 2% in four months’ time, as shown in the below graphic. If alternatively, the relatively higher December 2023 rate of 0.4% monthly inflation continues there will still be a significant reduction in annual inflation over the following four months, as shown below. Greater clarity over the future progression of inflation to end April will emerge on the 23rd February when the next Energy price cap is announced as current forecasts predict a significant fall in this level.

Inflation on the Up: Consumer price inflation rose to 5.3% in January from 5.1% in December, the first increase after two months of moderation. This is slightly higher than the 5.2% expected by economists. Restaurants & hotels saw an 8% increase, food & non-alcoholic beverages rose by 7.2%, and health by 6.5%. Food and NAB inflation slowed to 7.2% in January from 8.5% in December. Sub-categories like sugar, sweets & desserts, oils & fats, and cold beverages recorded lower rates. Bread & cereal products declined from 7.5% to 6.5%. Meat inflation cooled from 3.9% to 2.2%. Fuel prices dropped by 5.2% from December to January but annual fuel inflation rose from a 2.5% decline to 3.3%, contributing to a rise in transport inflation to 4.6% from 2.6% in December. The consumer price index rose by 0.1% in January 2024, moving further from the Reserve Bank's 4.5% target midpoint but remaining within its 3% to 6% range. The Monetary Policy Committee kept interest rates at 8.25%, unchanged for nine months after inflation eased to 5.1% in December. #Inflation #InflationSouthAfrica #Economics #InterestRates