The five basis points (bps) in inflation last month, analysts believe that the Monetary Policy Committee (MPC) may maintain its dovish stand when it meets next week.
Ahead of next week’s monetary policy committee meeting, the National Bureau of Statistics (NBS) announced a surprise 5bps moderation in headline inflation to 18.12 per cent, as temperance in food inflation (-23bps to 22.72 per cent Year-on-Year (YoY)) offset a 7bps increase in core inflation to 12.74 per cent.
The headline inflation reading was 54bps shy of our 18.66 per cent forecast for the review month and reflected notably benign month-on-month readings as shown below:
Headline inflation moderated to 0.97 per cent in April (vs 1.56 per cent in March)
Food inflation tapered to 0.99 per cent in April (vs 1.90 per cent in March)
Core inflation came in at 0.99 per cent in April (compared to 1.06 per cent in March)
Analysts at CardinalStone Research said, “we believe the halt in inflation provides a hitherto muted argument for advocates of dovish monetary policy ahead of next week’s policy meeting. In the previous two policy meetings, the doves have accumulated 100 per cent (January) and 67 per cent (March) of total votes to ensure that previously instituted stimulatory monetary measures remain in place.
“With the MPC previously signaling plans to combat inflation head-on1 if growth strengthens and price pressures accentuate, the slowdown in inflation may have, once again, cemented the likelihood that the hawks would remain in the minority at the MPC and calmed expectations of an indicative rate hike even after a positive first quarter of 2021 GDP report”..