Deflation ?

27 04 2007

In March 2007, the consumer price index (CPI) rose 0.24% MoM (month-on-month), after its 0.62% MoM rise in February 2007. As such, the YoY (year-on-year) inflation rate edged up from 6.30% in February to 6.52% in March.

Prices rose in all components of the CPI. The highest increase was posted in the clothing component (up by 0.41% MoM), followed by the processed foods component (up 0.36%), the housing component (up by 0.29% MoM), the medical care component (up 0.20% MoM), the foodstuffs component (up 0.16% MoM), the transportation component (up 0.09% MoM), and the education component (up 0.03% MoM).

The March inflation figure is higher than we had first expected. Initially, we had expected deflation in March (before we revised up our forecast in the middle of the month), mainly on the back of government intervention in the rice market. By making efforts to ensuring an adequate supply of rice to the domestic market – through rice imports – the government had hoped to get rice prices under control. But because of limited stocks of rice in their warehouses, the government’s efforts were not as successful as we had first expected. As a result, deflation did not occur in March. Nevertheless, rice prices did decline to some extent, thereby limiting inflation in the foodstuffs component in that month. As a result, prices in the foodstuffs component only rose by 0.16 percent in March, or significantly lower than the 0.84 percent increase in February.

Looking ahead, we still expect seasonality factors to put downward pressures on prices in April. The harvesting season will peak in April, exerting further downward pressure on rice prices. As such, we expect the monthly inflation figure to be lower in April than in March. And considering that rice prices have not fallen significantly from their level in December, the likelihood is high that rice prices will fall sharply in April, thereby giving rise to overall deflation. Get the full report.


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