Friday, April 11, 2014 10:35 AM/ DLM Research
Background to our forecast. The headline inflation for March 2014 is expected to be released by the National Bureau of Statistics on the 16th of April, 2014. Headline inflation for February 2014 came in at 7.70%, representing a decline from 8.00% recorded in the January 2014. The decline recorded in February 2014 was particularly attributed to higher year-on-year changes exhibited in the corresponding period of 2013. In addition, food inflation waned to 9.20% on the back of slower rises in prices of potatoes, yams and other tubers, fruit and vegetables which offset the price increase in the bread and cereals category whilst the price of meat remained flat from levels recorded in January. However, we highlight the resurgence of inflationary threats observed in the core sub-index as core inflation rose significantly in February 2014 to 7.20%, up by 60bps from 6.60% recorded in January 2014. The decline in core inflation was a result of price increases in appliances, articles and products for personal care, repair of household appliances, and motor cars.
We estimate a marginal decline in headline inflation to 7.60% 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 March. 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. Our forecast for March 2014 stands at c.7.60%, representing a decrease of 10bps from the 7.70% recorded in the previous month. (fig. 2)
We also forecast a y/y decline in food and core inflation. Our model shows a movement in the food sub-index captured by “farm produce and processed foods” to 157.6points in March 2014 up from 156.5points in the previous month. This resulted in a y/y food inflation of c.9.00%, 20bps lower than the 9.20% recorded in February 2014. Also, we forecast an increase in the core sub-index to 155.1points in March, up from 154.1points in February which translates to a core inflation of c7.10% y/y down from 7.20% in the previous month.
In March 2014, the rice index declined from an average of 99.48points to 97.77points y/y. Palmoil marked an increase from 113.85points to 121.89points whilst wheat marked an increase from 94.13points in February 2014 to 106.76points. (fig. 3)
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