CPI Preview: Inflation to remain low in July despite monthly jump

July 21, 2024 (MLN): Headline inflation is expected to remain on the lower side in July despite a significant jump in monthly prices.

The Consumer Price Index (CPI)-based inflation is expected to fall to 11.6% in July 2024, compared to 12.6% YoY in the last month and 28.3% YoY in July 2023.

Monthly inflation is projected to jump significantly by 2.6%. The increase would be the largest in eight months and compares with the last 12-month average increase of 1.0% MoM.

The Food index is projected to increase by 231 basis points (bps) on a monthly basis.

Major changes include a substantial rise in tomato prices, which have surged by over 55%, as well as increases in the prices of pulses, milk, wheat, and chicken.

Moreover, the Housing index is projected to jump 587bps, the largest since November last year which was on the back of a long-overdue gas price hike.

This surge is primarily attributed to quarterly rent adjustment, as well as rises in gas and electricity prices.

Furthermore, the Transport index is anticipated to increase by 220bps amid inflated fuel prices.

Inflation Sensitivity

If consumer prices rise an average 0.06% a month going forward, which is the last 6-month average, annual inflation will drop to about 0.6% by end-December 2024.

With a 1.0% monthly increase, which is the last 1-year average, annual inflation will fall to about 6.5% by December.

Meanwhile, with an average monthly increase of 1.6%, which is the last 2-year average, annual inflation will stand at 10.0% by December.

The following chart maps out the yearly inflation trajectory based on the average monthly pace over the past 6 months, 1 year, and 2 years.

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