The latest inflation report from the NBS shows the sixth successive acceleration in the headline rate, to 17.1% y/y in July from 16.5% the previous month. Our own contribution to wire service polls of analysts was a rate of 17.4% y/y. There was an increase in the core measure to 16.9% y/y from 16.2%. Based on the NBS commentary, energy products and import items continued to be the principal drivers. Food price inflation in July was 15.8% y/y, compared with 15.3%. Seasonal, post-harvest effects may prove positive in the months ahead.
The fx sourcing challenges have been the primary driver behind the surge in inflation this year and outweighed the impact of squeezed household consumption, which would normally have led to a moderation in inflation.
The m/m increases have slowed over the past two months, notably and encouragingly for core inflation.
Imported food prices rose by 1.5% m/m in July after an increase of 2.3% the previous month. This is the only index component composed solely of imports.
In July the monetary policy committee noted that inflationary pressures have been driven by structural factors such as electricity and import costs. However, it hiked the policy rate by 200bps to 14.00% to attract foreign investors and thereby boost fx liquidity. So far this ploy has had only limited success, so one temptation will be to hike again at its next meeting.
Mid-curve FGN bond yields are now about 200bps negative in real terms.
Until the exchange rate stabilises, inflation is likely to trend higher. We see inflation accelerating to 18.0% y/y at end- year.