The Consumer Price Index (CPI)/Headline Inflation/All Item Index
The Consumer Price Index (CPI), which measures inflation rose by 15.60% Year-on-Year (YoY) in Jan’22. This is 0.03% lower than the rate recorded in Dec’21 (15.63%) and 0.87% lower than Jan’21(16.47%). The headline inflation slowed down, reversing the previous month’s hike. The moderation in Jan’22 was on the back of the price deceleration in the food subindex.
Also, on a month-on-month (MoM) basis, the Headline Index increased to 1.47% in Jan’22; this is a 0.34% decline from the rate (1.82%) recorded in the previous month. The dip in monthly headline inflation reflects the absence of festive period spending that propelled an upsurge in Dec’21 alongside a decline in core inflation.
The Food Inflation
The Food sub-index inched up by 17.13% YoY in Jan’22 compared to 17.37% in Jan’21. Similarly, on a MoM basis, the food inflation increased to 1.62% in Jan’22, down by 0.57% points from 2.19% recorded in Dec’21.
The rise in the food sub-index was caused by increases in the prices of bread and cereals, food product, potatoes, yam & other tubers, soft drinks, oils & fats, and fruit.
The Core Inflation/ The All Items Less Farm Produce
The “All Items less farm produce” or “Core Inflation,” which excludes the prices of volatile agricultural produce, stood at 13.87% YoY in Jan’22, printing at par with Dec’21 rate (13.87%). However, on a MoM basis, the core sub-index increased by 1.25% in Jan’22, down by 0.13% compared with 1.12% recorded in Dec’21.
The highest increases were recorded in the price of electricity, liquid fuel, wine, tobacco, spirit, solid fuels, cleaning, repair, hire of clothing, shoes and other footwear, other services in respect of personal transport equipment, other services, and pharmaceutical products.
In line with our expectations, the headline inflation slowed down, reversing the previous month’s hike on the festive season demand. As the yuletide waned, the high base effect dictated the current trend in inflation moderation. Despite the decline in the headline monthly inflation rate, the FX impacted food segment and cost of utilities (such as electricity, gas, housing water, etc.) present an upside risk as they increased by 7bps and 38bps to close at 17.40% and 11.45%.
We still expect the impact of the base effect to persist in the first quarter of the year, but beyond this period, the outcome would likely become immaterial. In addition to the wane of the base effect, the poor food harvests of last year could cause food supply to be slim during the planting season of this year, hence, adversely impacting food prices as we move further into the year, alongside elevated energy prices being an upside risk to inflation in 2022.