Maximum inflation rate will reach 13% by end-2018, inflation will witness large decrease by end-2019, says CBE governor
Monthly headline inflation registered negative 0.1% and negative 0.2% in January 2018 and December 2017 respectively, while annual headline and core inflation declined for the sixth consecutive month to record, respectively, 17.1% and 14.4% in January 2018, after peaking in July 2017 at 33.0% and 35.3%.
Those rates are considered the lowest rates since October and September 2016.
On the other hand, monthly core inflation inched up by 0.2% in January 2018 after registering in December 2017 negative 0.4%, the first negative rate since August 2015. Monthly core inflation had averaged 0.3% in August and September 2017 before increasing to 0.7% in October 2017 and to 1.3% in November 2017, due to seasonal pressures on education and clothing prices respectively.
The number of items that experienced price increases narrowed down to 9.3% on average during the period between August 2017 and January 2018. This is lower compared to an average of 15.0% witnessed historically during the same period.
The inflationary impact of the domestic currency depreciation has diminished, including the effect on items that witness delayed or seasonal consumption such as education in October 2017.
In the meantime, prices of regulated items contributed significantly to headline inflation between July and November 2017 and marginally in January 2018. This was mainly due to subsidy reforms related to hydrocarbons, electricity, and water supply as well as upward adjustments of other regulated items such as tobacco, medical products, and public education.
Meanwhile, food inflation resumed its downward trend since August 2017, registering consecutive negative rates since November 2017. Negative food inflation was witnessed for the first time since January 2016. The downward trend was driven by lower core food inflation except in November 2017 and January 2018, where despite muted core food inflation, lower volatile food inflation took the lead.
In January 2018, poultry prices continued to decline for the eighth consecutive month, while red meat prices stabilised after declining in December 2017 for the first time since December 2015. Red meat prices were stable between September and November 2017 after recording consecutive increases since April 2016.
Meanwhile, historically low inflation in November and December was mainly driven by lower prices of volatile food items, whereby November and December 2017 inflation reflected cumulatively a relatively weaker decline that was compensated for in January 2018. Prices of fresh vegetables have been declining since November 2017 after increasing between July and October 2017, while prices of fresh fruits have generally stabilised.
The outlook for average annual headline inflation remains consistent with achieving the CBE’s target of 13% (±3%) in 2018 Q4 and single digits thereafter. The CBE’s Monetary Policy Committee’s decision to cut key policy rates by 100 bps at its meeting on 15 February 2018 remains consistent with tight real monetary conditions.