Headline inflation down, urban sub-index up marginally
Surprisingly and contrary to expectations, August headline inflation declined by 0.06% to 11.02%. This is the 3rd consecutive monthly decline and a 42-month low. The sustained moderation in the headline inflation was partially due to the harvest season and falling consumer disposable income.
The data also shows that all sub-indices with the exception of urban inflation declined. The marginal rise in this sub-index suggests that the forex restrictions on selected food imports and the border closure are beginning to take their toll on commodity prices, especially in the urban markets.
Inflationary pressures could be re-ignited in subsequent months
We expect inflationary pressures to be re-ignited in the coming months. This is partly due to increased seasonal demand, impact of the minimum wage implementation and forex restrictions on selected food imports. The critical issue is if the spike in the price level is significant enough to make the MPC change its stance from the tight situation to further tightening in November.
In the publication, the FDC Think-Tank analyzes the inflation data for August and its impact on the economic policy environment.
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