CPI inflation moderated to 3.89% y/y in August from 4.12% y/y in July, according to figures of the INSSE. Consumer inflation slowed down milder than market expectations, which pointed to a moderation to 3.80% y/y. The moderation was mainly backed by weaker inflationary pressure from non-food prices that resulted from falling fuel prices. Thus, non-food inflation diminished its contribution to headline inflation by 22bps in August. Food inflation also slowed, but probably less than expected, as imported fruit prices remained relatively high. Their contribution to CPI growth in August diminished by only 4bps and remained the major inflation driver, with a food price increase above 5% y/y. Meanwhile, service inflation picked up, mostly due to another hike in air transport tariffs. Hence, even though that segment has a low share in CPI calculation (about 20%), its contribution was 86bps in August.
The CPI resumed rising in monthly terms in August, after two consecutive months on the fall. The increase was driven by faster monthly price growth in services and by non-food inflation turning positive. In addition, food price decrease was milder than in July so it had a softer cushioning effect on the monthly consumer inflation. Still, better local production kept on diminishing inflationary pressure from domestically produced fruits and vegetables, which recorded new price drops in monthly terms. Non-food prices stopped deflating in August, even if fuel prices decreased, because the upwards effect of the tobacco excise increase implemented earlier in 2019 was stronger. As a result, adjusted CORE2 inflation stayed at 0.15% m/m, mirroring a persistent excessive demand.
Overall, CPI growth dropped back below 4% in August, which is in line with the NBR’s expectations for H2 2019. The government abandoned some intentions to hike taxes in food and tobacco excise, so further inflationary pressure was avoided. Even so, moderation might have been stronger considering the falling fuel prices and the flat gas and electricity prices. Yet, consumption was still robust in August, mostly fueling some more expensive import and hampering more significant price drops in non-food segment.