Economic Outlook: Inflation forecast for November 2013


Thursday, December 12, 2013 / DLM Research

Background to our forecast. The headline Inflation for November 2013 is expected to be released by the National Bureau of Statistics on the 17th of December 2013. We state that inflationary threats have remained largely subdued in 2013 in view of the significant decline of 420bps from 12.00% in December 2012 to 7.80% as at October 2013 (fig. 1). The deceleration in headline inflation recorded in October 2013 from the 8.00 percent recorded in the previous month was particularly attributed to the decline recorded in food prices which continued for the third consecutive month as a result of the harvest season that began in July 2013.

We estimate a marginal increase in headline inflation to 7.85% y/y. Our estimate is based on seasonal trends for months January through to December, which we believe to a large extent explains the expected inflation level for November. The food CPI constitutes a large proportion of the CPI Basket and seasonal patterns may vary based on harvest levels per crop. Our other estimate follows seasonal trending over a six-month period, which has shown significance over time. In the absence of other significant factors, our forecast for November stands at c.7.85 percent, representing increase of 5bps from the 7.80 percent recorded in the previous month.

We also forecast a y/y marginal increase in core inflation even as food inflation is likely to remain flat y/y. Our model shows a movement in the core sub-index to 151.7 points in November 2013 up from 150.0 points in the previous month. This resulted in a y/y core inflation of c.7.70 percent, 10bps higher than the 7.60 percent recorded in October 2013. Also, we forecast an increase in the food sub-index captured by “farm produce and processed foods” to 152.6 points in November, up from 151.6 points in October which translates to a food inflation of c.9.20 percent y/y. Overall, we forecast that the core inflation will trend upwards for the fifth consecutive month while food inflation would likely remain unchanged from October on a y/y basis.

In addition, we are inclined to highlight the moderation in the index of global prices of rice and wheat to 96.41points and 88.54points from 97.39points and 89.17points respectively in October. However, the palmoil price index rose from 82.18points to 84.85points in November 2013.

Overall, we note the significant deceleration in inflation in the current fiscal year even as we estimate an average inflation rate of c.8.52 percent lower than the average of c.10.90 percent and c.12.24 percent recorded in 2011 and 2012 respectively.

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