Last update: Mon, 23 Jan 2017 05am
Home » BR Research »

Inflation: rising but not soaring

 With the inflation rate moving up to 10.10 percent in January 2012 on a year-on-year basis, the tempo of a falling inflation rate seen in the past two months is reversing. Now that the latter half of FY12 has commenced, the high-base effect that was helping mitigate the inflation rate for the first half of the current fiscal year will also recede, making the possibility of inflation staying in the double-digits in the coming months a stronger possibility. On a month-on-month basis, the 1.54 percent increase in the CPI index in January 2012 over December 2011 is the highest month-on-month increase seen after 16 months, but can be attributed to a low-base effect of the previous month, since a negative month-on-month increase in the CPI was recorded in December 2011. January 2012 had been notorious for an incorrigible gas crisis and the accompanying increase in gas prices - an increase of 14 percent month-on-month according to the FBS press release. At the same time, petrol prices also witnessed an uptick of roughly 1.5 percent on a month-on-month basis in January this year. The impact of increased gas prices was obvious in the housing, water, electricity and gas sub-index, which carries a significant weight of around 30 percent in the overall CPI. The sub-index showed a whopping month-on-month increase of 2.27 percent in January this year, explaining partially the month-on-month increase in the general CPI discussed above, even though the year-on-year increase was still relatively muted. As for the food sub-index, the heaviest weighted on the CPI; the non-perishable carrying the major chunk of the food sub-index showed a year-on-year decrease. In contrast, on a month-on-month basis, an increase was seen in both the perishable and non-perishable food index, reversing the downward month-on-month trend seen in the previous two months. This could be an indication of the cyclical movement in food prices, with the downward trend witnessed in the previous two months appearing to reverse the cycle towards an increase in food prices. Yet, the year-on-year inflation rate for the food sub-index is still in the single digits, attributable partly to the slump in commodity prices seen lately. In line with the increase in petrol prices during January this year, the transport sub-index also showed the highest year-on-year increase this fiscal year, as well as the highest month-on-month increase after five months. Going forward, while the announced increase in petrol prices at the beginning of February promises some upward movement in the CPI index next month, the fact that the transport sub-index carries a relatively smaller weight of about 7 percent in the CPI means that this effect will be relatively less, though it will be present, nevertheless, with concomitant effects on other sub-indices as well. Food prices will likely maintain the upward trend witnessed this month in the next month as well, in line with the discussed cyclical movement seen in food prices. Yet, the relatively significant impact of increased gas prices seen in January will likely not be mirrored in February, meaning a significant month-on-month increase in both the general CPI index and the housing, water, electricity, and gas will plausibly not be witnessed. Therefore, while a month-on-month increase is expected for February, it will be relatively less than that seen this month. Consequently, on a year-on-year basis while inflation is expected to go up in the coming month, it will likely be relatively muted at slightly over 11 percent. The year-to-date average inflation for July-January FY12 at 10.76 percent is the lowest year-to-date average this year, which means that with the current discount rate at 12 percent, there may be a likelihood of a further rate cut in the upcoming monetary policy.


Major CPI groups - January 2012


Y/Y chg (%) M/M chg (%)


CPI general 10.10 1.54

Food & non-alcoholic beverages 9.30 1.56

Non-perishable food items 9.86 1.59

Perishable food items 6.19 1.39

Housing, water, elec,

gas & other fuels 7.67 2.27

Transport 14.84 1.34


Source: FBS