Inflation offers some relief in December

Gladys Abbott
January 18, 2018

Food prices recorded a major decline in December, the latest Consumer Price Index report released by the National Bureau of Statistics (NBS) on Tuesday has shown.

A lot of focus is likely to be put on tomorrow's CPI figures after inflation struck a five-year high of 3.1 per cent in November, despite the Bank of England's (BoE) raising of interest rates.

"This means that prices as measured by the all items CPI increased at an average rate of 0,53 percent from November 2017 to December 2017", said Zimstat.

Core CPI, which excluded more volatile prices such as food and energy, rose 2.5% year-on-year, less than the 2.6% expected and the prior month's reading of 2.7%. He also expects an even steeper fall for overall inflation at 2.9 per cent, predicting supermarkets will duck the chance to push prices even higher in December.

Expectations that inflation would stay below the government's 1-3 percent target in the near term drove the Bank of Israel to cut benchmark interest rates in early 2015 to 0.1 percent from 0.25 percent.

"In addition, consumer prices for electricity and natural gas held steady in December".

Inflation rate had doubled after the economy slipped into its worst recession in 29 years in 2016.

The cost of living dropped to three per cent in December, from a six-year high of 3.1 per cent the previous month.

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However, ONS senior statistician James Tucker said it was "too early to say" whether December's fall was the start of a trend. Sovereign bonds fell in extended trading hours on growing concerns about inflation and speculation the government will miss its deficit target for the year through March 2018 when it unveils its budget February 1.

Further, the data revealed that wheat became cheaper by (-) 8.47 per cent on YoY basis and the prices of pulses came down by (-) 34.60 per cent, but paddy became dearer by 3.19 per cent.

"These are also corroborated by other indicators such as the strong performance of the commercial vehicles sector and the pick in the growth rate of bank credit".

The sub-category of food and beverages during the month under consideration recorded a rise of 4.85 per cent over the same period past year.

Benue State, with 13.35 per cent, recorded the slowest rise in headline year-on-year inflation.

"If the central bank perceives the current bout of firm inflation as transient as the impact of one-off factors like GST, spike rental allowances, and base effects, to roll off, rates are likely to remain on a prolonged pause", the report said.

But Samuel Tombs, chief United Kingdom economist at Pantheon Macroeconomics, said: "The continued weakness of underlying price pressures means that the MPC has little need to rush the next rate hike".

Output price inflation is expected to ease to 2.9% from 3% a month ago.

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