Inflation continues disappointing trend

February inflation data disappointed those placing their hopes in the base effect. The annual inflation rate could have fallen below 10 percent by a narrow margin if the monthly inflation rate in February had fallen below 0.49 percent. But monthly inflation increased up to 0.73 – far above 0.49, almost by one and a half times – hence the annual inflation rate remained in two-digit territory.

When we analyze the details of recent inflationary developments, the results are not so promising either.

Looking at annual inflation, fresh fruit and vegetable prices – which are considered the main culprit behind two-digit inflation – price inflation declined down to 3.47 percent. Despite such a decline, inflation still remains above 10 percent, because inflation excluding fresh fruit and vegetable prices is at 10.38 percent.

This is a fact that we always set against the general assumption of fruit and vegetable prices pulling inflation higher. The latest data confirms how rooted and broad a problem inflation has become.

We should draw attention to new food price developments, especially fruit and vegetable prices.

First of all, the decline in fresh food and vegetable prices doesn’t reflect much on other unprocessed food and has almost no influence on processed food. For unprocessed food prices –excluding fruit and vegetables - annual inflation is still at a level of 8.96 percent. The annual inflation in processed food tends to increase above the general inflation rate as well with a level of 13.76 percent.

Secondly, the downward trend in fresh fruit and vegetable inflation is slightly rebounding. Annual inflation rate in fresh fruit and vegetables came in at 1.63 percent in January. It increased by 5.11 points and reached 3.47 percent.

So, we may have come to an end in the support from food prices which gave hope of a decline in inflation.

Things on other inflationary fronts don’t seem promising either.

Firstly, annual inflation is above general inflation across all headline core inflation indicators. The B (former H) index which excludes unprocessed food products, energy, alcoholic beverages, tobacco and gold prices is still above 12 percent.

Secondly, producer price inflation seems to have an outlook that will create an upwards pressure for consumer price inflation. The annual Domestic Producer Price Index is at 13.71 percent, 17.66 percent for intermediate goods and 13.23 percent in durable good.

Lastly, a potential increase in foreign exchange rates can easily reverse the weak decline in inflation.