Headline inflation grew by 15.60% YoY in January 2022; 0.03% lower than 15.63% recorded in December 2021.
Food inflation inched up by 17.13% YoY in January 2022; 0.24% lower than 17.37% recorded in December 2021.
Core inflation stood at 13.87% YoY in January 2022; printing at par with the rate recorded in December 2021.

The decline in yearly headline inflation marks a return to a trend of moderation that took a momentary pause in December. Essentially, the disinflation recorded in January 2022 rode on the back of price deceleration in the food subindex.

Headline Inflation

In January 2022, headline inflation rose by 1.47% MoM, representing a 0.34% decline from the rate of 1.82% that was recorded in the previous month. The yearly average rate rose to 16.87%, 0.08% lower than 16.95% recorded in the previous month. The dip in monthly headline inflation reflects the absence of the festive spending flurry that propelled prices in December 2021.

Food Inflation

The food subindex rose by 1.62% MoM, reflecting a 0.57% decline from the rate of 2.19% recorded in December 2021. The yearly average rate rose to 20.09%, 0.31% lower than 20.40% recorded in the preceding month. The food subindex rose at a slower pace in the review month, given the absence of the bloated food demand that characterizes the preceding month.

Core Inflation

Core inflation stood at 1.25% MoM, up 0.13% from 1.12% recorded in December 2021. The yearly average rate also rose to 13.33% last month, 0.17% higher than 13.16% recorded in the preceding month. The highest increases were recorded in the prices of electricity, liquid fuel, wine, tobacco, spirit, solid fuels, cleaning, repair and hire of clothing, shoes and other footwear, and pharmaceutical products.

Analyst’s Comments

In line with our expectations, the uptick seen in December 2021 for both the yearly headline and food indexes was a temporary blip, induced by the soaring spending that characterized the festive season. As the euphoria of the yuletide waned, the base effect essentially dictated the trend in price level for January 2022. In the review month, the impact of the high base lingered, consequently decelerating the overall price increase. While the monthly inflation rate for the headline and food segment declined, the impact of soaring energy costs significantly impacted the core segment, hence, pushing prices up on a monthly basis. Also, it is important to note the upside trend of the “FX impacted imported food segment” and the cost of utilities as captured by the “housing water, electricity, gas and other fuel subindex”, with these two subindexes rising by 7bps and 38bps to 17.40% and 11.45%, respectively. In our view, these inflationary drivers would persist for the most part of the year.

We maintain the same view on the trend of inflation as posited in our last report, as the high-base impact continues to sponsor a deceleration of the price trend in the first quarter of the year, drawing further support from the abated impact of festive leftover price pressures in sectors like hospitality (Restaurant & Hotels). Looking further into the year, we recognize the possibility of upside inflation surprises, as the sub-par food harvests of last year could cause food supply to be slim during this year’s planting season, hence, propelling staple food prices northwards. Also, the impact of a base-effect sponsored moderation should become less material as we move further into the year, leaving the rate of inflation susceptible to the pass-through effect of soaring energy costs (fuel, electricity and gas) and currency depreciation.

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