Headline inflation for April is forecasted to decline by some 100 basis points (1%). The projected decline in inflation, GCB Capital Research notes, is expected to reset headline inflation onto the path of disinflation.
Headline inflation witnessed a sharp increase of 2.6% in March 2024 to end the month at 25.8% from the previous month’s (February) inflation figure of 23.2%.
“We flag fiscal risks and potential speculative FX [foreign exchange] pressures due to uncertainty as risks to the inflation outlook. Thus, while we expect favourable base effects, the implementation of the new CRR [Cash Reserves Requirement] directive and the continuously tight monetary policy stance to restore the disinflation process from April 2024, these outlined risk factors could moderate this anticipated pace of disinflation through quarter 2, 2024. Consequently, we see at least a 1.0% decline in headline inflation for April 2024 but still above the February 2024 number, driven largely by a sharp decline in food inflation.
“While we see the March [2024] increase in inflation as transitory, the prevailing and emerging upside risks to the near-term inflation outlook remain pronounced. Amidst the lingering petroleum price pressures (largely due to exogenous factors), Brent crude oil may be headed for $100 per barrel”, GCB Capital noted.
“The resultant increases in ex-pump petroleum prices, possible upward adjustment to transport fares, and their second-round effects represent a significant risk to the inflation outlook.
“We expect disinflation to resume from April 2024, but the prevailing upside risks to inflation could moderate the pace of disinflation in the coming months. While we see the March increase in inflation as transitory, the prevailing and emerging upside risks to the near-term inflation outlook remain pronounced”, it added.
Food and non-food inflation recorded sharp increases in inflation (a 2.6% increase apiece) to 29.6% and 22.6%, respectively in March 2024. This reflected the base effects and the prevailing price pressures.
Specifically, 12 out of the 13 divisions recorded higher rates of inflation year-on-year, dominated by transport (+4.4% year-on-year), education services (+4%), health (+3.9%), sport and recreation (+3.9%), among others.
The increase in inflation from the food basket was the first recorded in nine months. Also, the 2.6% increase in headline inflation for March was the highest in four months.