The recent weekly CPI report guides that the full-month growth in consumer prices had slowed to 6.2% YoY by the end of September. This came slightly above our estimate of 6.1% YoY on the back of the harmful effect of last year’s bad harvest being an underestimated.
The deflation in fruit and vegetables prices was milder last week (-1.1% WoW vs. - 2.0% WoW) and this was a major hurdle for inflation slowing down, despite a visible deceleration in the prices of gasoline, milk and butter. Moreover, the increase in the price of eggs kept gathering pace, with the weekly growth reaching a two-year high of 2.3% (in September 2011, eggs prices jumped following a severe drought during the summer 2010).
In the coming months, a good 2013/14 harvest (and, consequently, lower wheat prices) will likely filter through into the real economy and, along with softer growth in gasoline costs and the anticipation of just a meagre pass-through effect from the FX market, abate supply-driven inflation pressures in the economy. At the same time, demand-driven inflation pressures will likely stay bleak amid the stagnant economy. Hence, we are retaining our view on strong disinflation ahead, indicating some modest upside risks to our YE13 forecast of 5.4% YoY.