Monthly Inflation:”Still High”

Monthly Inflation:”Still High”

CPI Review

Consumer Price Index (CPI) in June 2016 increased due to the rise in volatile foods, electricity rates, air freight rates, and gold jewelry prices a result of increased demand of Ramadan celebrations. Furthermore, monthly inflation increased by 0.66% m-o-m from 0.24% m-o-m in the preceding month. Based component, the inflation was posted by the foodstuffs component increased by 1.62% m-o-m, prepared food component rose by 0.58% m-o-m and the transportation and communication component also increased by 0.63% m-o-m.  Moreover, the clothing component rose by 0.70% m-o-m and the medical care component increased by 0.34% m-o-m. Meanwhile, the education, recreation, and sports component slightly increased by 0.03% m-o-m and the housing component experienced slightly rose by 0.15% compared to preceding month. Meanwhile, yearly inflation increased to 3.45% y-o-y in June 2016, compared from 3.33% y-o-y in the previous month.

Inflation in the foodstuffs component in June 2016 mainly stemmed from higher prices of chicken meat, fish, eggs, potato, carrot, rice, spinach, apple, beef, cucumber, oranges, and coconut. We believe the price increase in these products were mainly due to

a.   Lower domestic supply

b.   Higher domestic demand (Ramadan effect)

Furthermore, inflation in the housing component in June 2016 came primarily from higher prices of electricity rates and worker wages not a foreman. Inflation in the transportation and communication component in June 2016 came primarily from higher prices of air freight rates, inter-city transportation tariff, and car.

Meanwhile, inflation in the prepared foods component in June 2016 mainly stemmed from higher prices of sugar, rice with meal, cigarette, white cigarette, and filter cigarette. Inflation in the education, recreation and sports component in June 2016 mainly stemmed from higher prices of sports sub-sector.

Moreover, inflation in the medical care component in June 2016 still came primarily from higher price of medicines sub-sector. Inflation in the clothing component in June 2016 came primarily from higher prices of gold and jewelry.

On a yearly basis, inflation remains in check with the upward trend still intact, as the inflation slightly increased to 3.45% y-o-y in June 2016 compare 3.33% y-o-y in the previous month. Furthermore, year to date inflation in January–June 2016 reached 1.06% slightly higher than 0.96% for the same time frame in 2015.

CPI Outlook

We expect inflation in July 2016 will rise as a result of increased demand in Eid celebrations. As in previous years, the celebration of Eid trigger a surge in demand for goods and services at the time the supply is limited, causing a surge in the prices of goods and services. There are some foods that experienced price hikes such as chicken meat, sugar, red pepper, chili, onion, garlic, salt fish, and fish. Furthermore, price pressures were still going on some goods and services, such as housing rents, housing contracts, cars, electricity rates, and transportation tariff. Moreover, the price of gold jewelry was also increased in July 2016. Meanwhile, there are some basic need prices decreased as cooking oil, wheat, eggs, rice, and milk. Based on these factors, we expect the consumer price index in July 2016 may increase 0.85% m-o-m higher than in June 2016 which reached 0.66% m-o-m. However, we expect the yearly inflation rate in July 2016 will decrease to 3.37% y-o-y from 3.45% y-o-y in June 2016.

Meanwhile, we expect monthly core inflation increase in July 2016. Core Inflationary pressure was still caused by rising prices of gold jewelry, car, housing rent, housing contract, and transportation tariff.  We expect core inflation in July 2016 may reach 0.44% m-o-m higher than 0.33% m-o-m in June 2016. Furthermore, we expect the yearly core inflation in July 2016 would increase to 3.59% y-o-y from 3.49% y-o-y in the previous month.