In line with market analyst expectations for continued food price pressure, November’s headline inflation printed 11.85% y/y the highest since May 2018. The outturn is 25bps higher than the prior month (October: 11.61% y/y) and 4bps shy of our estimate (11.89% y/y). Month-on-month headline inflation receded marginally by 5bps to 1.02% (4bps below our estimate: 1.06%), on softer food inflation, and amidst slight pressure in the core basket.
Food prices maintained upward trajectory: The dual impact of the sustained border closure and festive induced demand took a toll on food prices, as food inflation surged by 39bps to 14.48% y/y. The increase stemmed from farm-produce (+36bps), processed food (+101bps) and imported food (+4bps). However, the initial reaction from the border closure seems to be fading, as food prices, on a month-on-month basis, dipped marginally by 8bps.
Pressure resurfaced from core inflation: In our inflation note from last month, we argued that the impact of a low base from the corresponding period in the prior year would pressure core inflation. True to our prognosis, core inflation expanded by 12bps to 8.99% y/y – highest in 7 months – with pressure emanating primarily from energy inflation (+44bps). In our view, the pressured energy price was due to a sharp jump in AGO (diesel) prices (+2.52% y/y). Similarly, to the yearly movement, month-on-month core inflation increased marginally by 5bps, reflecting pressure from higher average PMS (+1.03% m/m) prices.
We expect Inflation to print 12.05% in December: We expect festive induced demand, coupled with the impact of the border closure to have a negative passthrough on food inflation. That said, despite continued FX stability and liquidity, we expect core inflation to increase further, given the low base from the corresponding period in the prior year. Overall, we expect headline inflation to sustain its upward trajectory, expanding to 12.05% y/y (0.92% m/m) in December.