Maldives: Quarterly Economic Bulletin - June 2017

Transcription

1. Quarterly Economic Bulletin June 2017 Volume 23 Issue 2
2. This bulletin is compiled by the Research Division (RD) of the Maldives Monetary Authority (MMA). It covers developments in the domestic and international economy during the first half of 2017. The analyses are based on information provided by relevant government authorities, commercial banks operating in the country, public enterprises and other private sector sources, as at 2nd August 2017. Where actual data is not readily available, estimates have been made by RD based on available information. The timely receipt of data is therefore crucial to the compilation of this publication and the analyses contained herein.
3. Contents Recent Economic Developments ­­ Overview of Macroeconomic Developments 1 International Economic Developments 3 3 Output Inflation 5 Commodity Prices 7 Domestic Economic Developments 9 Real Economy 9 Inflation 13 Public Finance 16 Revenue 16 Expenditure 17 Financing 18 Monetary Developments 20 Financial Sector 26 Banking Sector 26 Other Financial Institutions 27 External Trade 30 Merchandise Exports 30 Merchandise Imports 31 Direction of Trade 32 Gross International Reserves 34 Exchange Rates 35 Statistical Appendix
4. Abbreviations bpsbasis points c .i.f. cost, insurance, freight CPI consumer price index EUEuropean Union f.o.b. free on board GDP gross domestic product GIR gross international reserves HICP Harmonised Index of Consumer Prices IMF International Monetary Fund M0 reserve money M2 broad money MMA Maldives Monetary Authority NCG net claims on central government NDA net domestic assets NFA net foreign assets NPL non-performing loan ODF Overnight Deposit Facility OFI other financial institutions PMI Purchasing Managers Index SOEstate-owned enterprises UK United Kingdom US United States WEO World Economic Outlook
5. Recent Economic Developments
7. ­­Overview of Macroeconomic Developments robustly during the first half of the year. By the The global economic performance continued to was largely contributed by higher arrivals from improve during the first half of 2017 and is in line Europe, particularly Russia and Italy, which more with the initial projection for the year, against the than offset the decline in arrivals from the single backdrop of a long-awaited cyclical recovery in largest market, China. The strong performance global trade. Economic activity picked up pace of the tourism sector was further evidenced by a markedly and is expected to persist, especially marked growth of 9% in tourist bednights during in large emerging and developing countries; and the period, which is another key indicator for the in some advanced economies. However, due to sector performance. end of H1-2017, nearly half of the tourist arrival target for the year 2017 was achieved and total arrivals recorded a remarkable growth of 6% in annual terms. This significant increase in arrivals increased political and economic uncertainty, growth projections for some advanced economies As for the other main sectors of the economy, the have been revised downwards. performance of the fisheries sector also showed a marked improvement during H1-2017 as depicted After a temporary upturn at the beginning of the by the significant increase in fish purchases by year, global inflation eased towards the end of the fish processing companies. Concurrently, the first half, largely reflecting the waning effect of the construction sector continued to grow robustly commodity price rebound in H2-2016. Inflation due to easier access to finance and large public rates in advanced economies moderated while infrastructure projects. Furthermore, activity in the inflation rates in emerging markets and developing wholesale and retail trade sector also improved as economies remained subdued during the period. indicated by the increased growth in private sector The developments in the global commodity market imports and bank credit to the commerce sector. largely reflected the trend in crude oil prices, which recorded a weaker growth in the recent months as a Meanwhile, the domestic rate of inflation result of excess supply. accelerated considerably to 3.8% in H1-2017 from 0.7% in the preceding half. This was largely driven Looking at the developments in the domestic by domestic factors, especially the base effect of the economy, the tourism sector—which is the single reduction in food subsidies effective from October largest contributor to the gross domestic product 2016 and also the upward revision of import (GDP) of the Maldives—continued to perform duties on cigarettes effective from March 2017. In Quarterly Economic Bulletin - June 2017 1
8. addition , the continued increase in housing rentals Turning to the banking sector, the performance also contributed to the higher rate of inflation in of the sector remained strong as indicated by the H1-2017. capital adequacy ratios, asset quality and earnings. The overall public finance situation of the country showed signs of improvement over the first six months of the year with a moderate increase in total revenue and a significant decline in total expenditure. The strong growth in tax revenue receipts helped to more than offset the decline in non-tax revenues in H1-2017. Meanwhile, reflecting the asset quality improved over the period with a decline in absolute value of non-performing loans (NPL). The loan portfolio continued to grow robustly while liquidity remained at an adequate level. The banking sectors credit risk was mitigated by adequate provisions that fully cover the NPLs. the concerted effort to streamline government As for the developments in the external sector, recurrent expenditure, such expenditures were merchandise exports recorded a significant growth reduced during the period. Further, a substantial owing to sizable increases in both domestic decline was observed for capital expenditure exports and re-exports. While domestic exports as a result of lower spending on Public Sector increased due to a growth in earnings from frozen Investment Program (PSIP). With regard to deficit skipjack tuna exports, the increase in re-exports— financing, government budget deficit continued to mainly comprising of jet fuel sold at international be financed through domestic sources, especially airports—stemmed from the pickup in oil prices in through the issuance of government securities to the international market. Meanwhile, merchandise the domestic market. imports also increased during the period as a result On the monetary front, the monetary aggregates— reserve money and broad money—registered 2 The capital adequacy ratios remained high while of the recovery in oil prices and the buoyancy in economic activity. declines in H1-2017. The decline in reserve money With regard to gross international reserves (GIR), resulted from a decline in both net domestic assets although it followed a declining trend during H1- (NDA) and net foreign assets (NFA) of the MMA. 2017, the pace of decline slowed towards the end Of this, the largest contributor to the decline in of the period. These developments largely reflected reserve money was the fall in NDA of the MMA. the trends of the usable reserves component of GIR. Meanwhile broad money declined marginally due At the end of June 2017, usable reserves registered a to a significant fall in NFA of the banking system, marked growth of 15% as a result of proceeds from which was almost entirely offset by a growth in a sovereign bond issued by the government during NDA. the month. Quarterly Economic Bulletin - June 2017
9. International Economic Developments Output The global economy continued its cyclical recovery during the first half of the year and the initial projection for the year remains on track . Global output growth1 is estimated at 3.5% in 2017, a slight gain from the previous year. The overall growth, Figure 1: Real GDP Growth in the Advanced Economies, 2014-2017 however, masks divergent contributions at the (annualised percentage change) country groups. While activity in the first quarter of 6 the year has held up better than expected in large emerging and developing economies as well as in some advanced economies, growth projections for some advanced economies have been revised downward slightly due to increased political and economic uncertainty. 4 2 0 -2 -4 -6 -8 -10 2014 2015 2016 United States Euro area Japan United Kingdom 2017 Looking at the advanced economies, the United States (US) economy gained steam and recorded Source: OECD Database, Cabinet office Japan, Office for National Statistics UK, Bureau of Economic Analysis US an annualised growth rate of 2.6% in Q2-2017, after a sluggish performance in the first quarter (Figure 1). The significant slowdown at the turn of the year occurred against the backdrop of a downturn in personal consumption expenditure—the main driver of the economy, coupled with lower private inventory investments. However, personal consumption expenditure recovered strongly and the growth has gathered pace during Q2-2017. Furthermore, exports also observed a marked growth during the 1 International Monetary Fund, ’World Economic Outlook (WEO) updates—July 2017’. Quarterly Economic Bulletin - June 2017 3
10. quarter after contributing negatively at the end of since 2014 . The growth in the economy was largely 2016. Nonetheless, output forecast for the latter driven by a robust growth in consumption— half of the year remained pessimistic as major fiscal one of the key drivers of the economy—which policies are now expected to be less expansionary. compensated a fall in exports during Q2-2017. Moreover, the real wage growth continued to lag, Meanwhile, imports grew during the period due despite unemployment figures falling to an average to increased crude oil and energy imports. Growth of 4.5% in H1-2017. forecasts for the year remains tilted to the upside, reflecting the strengthening of trade in both global In the euro area, economic growth outturns were and domestic markets. stronger than expected in the first half of the year and growth rate has further accelerated to 2.1%, Meanwhile, the United Kingdom (UK) economy in annual terms, during Q2-2017. Growth in the slowed further during the first half of the year euro area was largely driven by strong domestic and slipped to 1.7% in Q2-2017. The slowdown in consumption, which was reinforced by labour growth since 2016 has been mainly concentrated market improvements. Unemployment rate at the in the service sector, although activity in the region fell and was recorded at 9.3% towards the sector bounced back in the second quarter. The end of the period. Hence, growth forecast for the decline in household spending as a result of rising region has been revised upward for 2017. Looking inflation and falling real wages remained a main at the main economies in the region, Germany drag on output growth during Q2-2017, despite picked up pace on the back of buoyant domestic improvement in the service sector. In addition, the consumption activity. weakening in the manufacturing and construction Meanwhile, favourable labour market together sector further dampened growth during the with a rise in private consumption boosted growth period. Activity is expected to slow slightly over in Spain. On the other hand, activity in France the upcoming quarters as the pound sterling contracted as political uncertainty hindered growth depreciated sharply during the period. and robust industrial in Q1-2017. Growth in France, however, overturned and accelerated towards the end of first half as the economy was fuelled by the increase in household residential investment. Economic activity in Italy was positively impacted by the strengthening of the industrial sector in the region. Looking at the emerging market and developing economies, the Chinese economy has been maintaining its annual growth pace at 6.9% since the beginning of the year. While government policies and credit growth continued to play an instrumental role in maintaining the growth rate, 4 The Japanese economy grew markedly and stood at the growth outturn in H1-2017 was slightly above 4.0% in Q2-2017, recording the fastest pace of growth the projected target of 6.5% set by the Chinese Quarterly Economic Bulletin - June 2017
11. authorities for the year . However, a slower-than- services PMI hit an 8-month high at the end of expected growth was observed in investment during H1-2017. However, the Nikkei’s Manufacturing the period, although consumption grew rapidly as PMI for India dropped during Q2-2017 because of the economy continues its gradual transition from a water scarcity and impending introduction of GST manufacturing-driven economy to a consumption- . Nevertheless, the economic growth is expected to based economy. Looking at the outlook for the year, picked up during the period due to the stronger the growth forecasts are revised up for China on the domestic demand led by government fiscal support ground of stronger growth prospects, supported by and the improvements in global trade. policy easing and supply-side reforms. Russia maintained a robust growth in H1-2017 Inflation as both investment and consumption gained Despite an uptrend at the beginning of the year, momentum—a recovery spanning from the latter global inflation eased to 1.6% in H1-2017, largely part of 2016. Developments in global trade together reflecting the waning effect of the commodity with the firming of global oil prices paved way for price rebound in the last half of 2016 (Figure 2). better performance of Russian ruble in the global While inflation in most of the advanced economies market during the period. As a result, financial moderated and remained below the targets, conditions improved in the economy, aiding to pick inflation remained subdued in the emerging up in investments. Meanwhile, the real wage growth markets and developing economies during the and improvements in labour market conditions period. contributed to the upturn in domestic consumption. The improved confidence in both investment and Looking at the price developments in the advanced consumption is expected to provide impetus to economies, inflation in the US accelerated slightly growth in 2017. to 1.1% in H1-2017 when compared with the latter half 2016. Despite a strong growth in food prices In India, economic growth accelerated in H1-2017 observed during the period, this was entirely offset after temporarily slowing down towards the end of by a fall in oil prices during the second quarter previous year. The economy flourished during the of 2017. Meanwhile, prices of transportation and first quarter of 2017 as indicated by the Purchasing fuel also moderated towards the end of the half Managers Index (PMI), with increased new orders reflecting the decline in oil prices. in both manufacturing and service sectors. The negative impact of demonetisation which resulted in In the euro area, the rate of inflation as measured temporary cash shortages and payment disruptions by the annual change in the Harmonised Index of showed signs of fading away. As a result, the Consumer Prices (HICP) picked up to 1.7% during Quarterly Economic Bulletin - June 2017 5
12. H1-2017 , after recording a marginal growth in H22016. In line with the global trend, inflation in the euro area receded towards the end of the first half as global oil prices decelerated. Nevertheless, prices of oil-related items such as transport and energy contributed positively to the growth in HICP during the period. Further, an increase was observed in food price during the period, although this was partly offset by a decline in prices of telecommunication. In Japan, inflation softened to 0.1% during H1-2017, after picking up in the latter half of 2016. The growth in prices remained weaker than expected, and the chances of reaching the target rate of inflation remain (annual percentage change) 7 6 5 4 3 2 narrow as a slow growth in global prices spurred 1 into the domestic economy towards the end of the 0 2014 2015 2016 first half. The slight increase in inflation was driven World by an increase in the prices of oil-related items, Emerging markets and developing economies owing to the depreciation of yen at the beginning of the period. In the UK, the rate of inflation rose to 2.4% in H12017, picking up significantly from H2-2016 although inflation eased slightly towards the end of H1-2017 in line with the global trend. The sharp increase in inflation rate was contributed by the rise in transport and food and beverage prices during the period. Price increases in such categories mainly reflected higher cost of imports due to the higher prices in the domestic economy. This was due to the rise in import costs as a result of the depreciation of pound sterling. Looking at the emerging markets and developing economies, the rate of inflation in China increased 6 Figure 2: Inflation, 2014-2017 Quarterly Economic Bulletin - June 2017 Advanced economies Source: IMF International Financial Statistics Database 2017
13. to 1 .1% in comparison with H2-2016. This increase in inflation stemmed from a growth in food prices as well as non-food prices. However, inflation started to decelerate during the second quarter of 2017 as food prices started to decline due to good harvest and also due to the seasonal factors affecting demand. In India, inflation declined in H1-2017 when compared with the latter half of 2016. Inflation in all major commodities started to decelerate at the turn of the year after picking up towards the end of 2016. The ease in inflation was mainly driven by a fall in the prices of vegetables and pulses due to abundant supplies. Further, the impact of the demonetisation and the impending introduction of GST also dampened price growth during the period. Meanwhile, Inflation in Russia stood at 2.2% in H1-2017, steadily maintaining Figure 3: Global Commodity Prices, 2014-2017 (annual percentage change) 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 -0.4 -0.6 -0.8 2014 the same pace as the preceding half. The positive growth in inflation was mainly contributed by a 2015 2016 2017 Total index Food index Metal index Crude oil index Source: IMF pick-up in food prices during the period. However, total inflation remained relatively unchanged during the period because of the deceleration in oil prices coupled with the depreciation of ruble towards the end of H1-2017. Commodity Prices The IMF commodity price index increased markedly by 21%, in annual terms, during the first half of 2017, largely reflecting the annual growth in the prices of major commodity groups including crude oil, metal, and food prices. Similarly, the IMF commodity price index recorded a growth of 7% when compared with H2-2016, driven by the Quarterly Economic Bulletin - June 2017 7
14. growth in crude oil prices and metal prices , coupled in oil prices during the period—crude oil prices with a slight increase in food prices (Figure 3). increased by 9% when compared with H2-2016. Prices of crude oil bottomed out and recorded an Looking at other major commodities, global average of US$51.19 per barrel2 in H1-2017— an food prices as measured by the IMF food price annual growth of 32%—after plunging to US$38.8 index rose by 5% in annual terms in H1-2017, an per barrel in H1-2016. This largely reflected the upturn when compared with the decline of 2% in agreement by Organisation of Petroleum Export H1-2016. According to the Food and Agriculture Countries (OPEC) and some non-OPEC producers Organisation of the United Nations, price increases to cut production in November 2016. Prices of were observed across major price indexes such as crude oil rallied at the turn of the year, mirroring dairy products, meat, cereals and oil products. The declines in production by OPEC and non-OPEC rise in food prices during the period was driven countries. While OPEC production recorded by stronger demand in both domestic and global one of the deepest cut in its history, non-OPEC markets, coupled with currency movements in member countries in the deal also contributed to large exporting countries. In addition, adverse the decline. Crude oil prices were also pushed up weather conditions in some of the key producing by better-than-expected global demand stemmed countries dented supply and led to a rise in food from healthy manufacturing and road construction prices during the period. activities in China as well as strengthening of transport and industrial sectors in India. Further, temporary price increases were observed over the period because natural hazards and civil unrest impacted oil supply. For instance, there was a supply outage in Canada due to wildfire and oil infrastructure in Nigeria was disrupted in militant attacks. However, the crude oil market continued to be plagued by excess supply and still high inventory levels due to rising concerns over the compliance of OPEC supply curtailment. Increases in supply due to the robust recovery in US shale oil inventories amid slow pace of oil inventory drawdowns continue to weigh on oil prices. These movements were reflected in the weaker growth With regard to global metal prices, the IMF metal price index rose by 26% when compared with H12016. The substantial growth in metal prices was driven by strong demand, together with major supply disruptions. The strong demand stemmed from the expansion of real estate investments in China, while supply constrains were due to mine disruptions and labor strikes in major exporting countries. Further, the weakening of the US dollar during the period also pushed up metal prices in the global market. However, growth in metal prices slowed down towards the end of the first half as Chinese authorities implemented credit tightening in order to reduce consumption. Meanwhile, supply constraints decreased as strike-hit mines 2  Quarterly average of Brent, West Texas Intermediate and the Dubai Fateh. 8 Quarterly Economic Bulletin - June 2017 commenced operations.
15. Domestic Economic Developments Real Economy Tourism Sector The tourism sector continued to perform robustly during the first half of the year , following the strong growth observed during the latter half of 2016. At the end of June 2017, total tourist arrivals reached nearly half of the tourist arrival target for the year 2017. It is also noteworthy that the performance of the sector in the period was stronger than the growth observed during the corresponding period of previous two years. Figure 4: Tourism Indicators, 2014 - 2017 (thousands, annual percentage change) 400 30 350 300 15 250 200 150 0 100 50 Looking at the key indicators of the tourism industry, 0 2014 2015 2017 -15 Tourist arrivals tourist arrivals grew annually by 6%, with tourist Tourist arrivals growth (right axis) Tourist bednights growth (right axis) arrivals totalling 657,540 in H1-2017 (Figure 4). While growth rate was remarkably higher when 2016 Source: Ministry of Tourism compared with a 2% annual growth rate recorded in H1-2016, this also exceeded the arrival growth rate of 4% projected3 for the year 2017, signaling to better growth prospects for the year. The significant increase in tourist arrivals was largely contributed by higher arrivals from the Europe, particularly Russia and Italy, which more than offset the decline in arrivals from the single largest market – China. The growth in tourist arrivals to the country was also in line with international trends in tourism. 3  Projection made in October 2016 by the Ministry of Finance and Treasury. Quarterly Economic Bulletin - June 2017 9
16. According to United Nations World Tourism Organisation statistics , international tourist arrivals grew annually by 6% between January and April 2017. In comparison, domestic tourist arrivals grew slightly higher at 7% in annual terms during the same period. International arrivals for major destinations around the world were also positive. As for other key indicators, tourist bednights rose markedly by 9% in annual terms during H1-2017, up from the 7% growth rate recorded in H1-2016. This largely reflected the increased number of arrivals and, to some extent, the increase in average duration of stay from 6.1 days in H1-2016 to 6.3 days in H12017. Figure 5: Arrivals from Major Inbound Markets, 2014-2017 (thousands) 200 180 160 140 On the supply side, the registered number of resorts stood at 130 at the end of June 2017 in comparison with 117 resorts registered at the end of June 2016 and an additional 3,124 beds were registered during the period. Consequently, the average operational 120 100 80 60 40 20 0 2014 2015 Italy Russia bed capacity of the industry rose substantially by 14% during the period. Mirroring to the significant increase in operational bed capacity, the average occupancy rate of the industry slightly fell from 64% to 61% during the first half of 2017, despite an increase in bednights. As for developments in market share by region, arrivals from Europe which accounted for 49% of total tourist arrivals in H1-2017, increased significantly by 11% during the period. Arrivals from the largest tourist generating market from the Europe – Germany – posted a slight decline and arrivals from the UK – the second largest – registered a muted growth over 10 Quarterly Economic Bulletin - June 2017 Source: Ministry of Tourism 2016 Germany United Kingdom 2017 China
17. the period . However, arrivals from all other major markets from the region including Italy and Russia increased notably during the period (Figure 5). The market share of the Asia and the Pacific region Figure 6: Change in Share of Key Inbound Markets, 2016-2017 posted a marginal growth of less than 1% and accounted for 43% of total tourist arrivals. This was mainly due to the protracted decline in arrivals from the single largest market, China. Arrivals from China declined drastically by 10% and accounted for 22% of total arrivals in H1-2017 (Figure 6) when compared with 25% in H1-2016. The continued decline in 30 25 20 15 10 5 0 arrivals from China was partly owed to a reduction in Russia United Kingdom Germany H1-2016 flight movements to the region due to discontinuation of the largest inbound carrier to the Maldives from Italy China H1-2017 Source: Ministry of Tourism China, the Mega Maldives Airline. The significant decline in arrivals from China was entirely offset by a sizable increase in arrivals from other markets from the region including India, Malaysia and Thailand. Figure 7: Fish Purchases, 2014-2017 Fisheries Sector Looking at the developments in the fisheries sector, the primary fishing activity showed a remarkable improvement during H1-2017 as depicted by the key indicators. Fish purchases by fish processing companies increased markedly by 32% in annual terms and totalled 32.5 thousand metric tons in H1-2017 (Figure 7). In comparison, fish purchases registered an annual decline of less than 1% during the same period of 2016. The increase in fish (thousand metric tonnes) 9 8 7 6 5 4 3 2 1 0 2014 2015 2016 2017 Source: Ministry of Fisheries and Agriculture purchases was largely due to higher purchases of skipjack tuna, an annual increase of 58%. It was also partly contributed by a 6% growth in yellowfin tuna purchases during the period. Quarterly Economic Bulletin - June 2017 11
18. As for the price developments in the domestic tuna market , the local fish processing companies maintained their purchasing price for iced skipjack tuna and fresh skipjack tuna at MVR19.0 and Figure 8: Prices Paid for Fish by Local Processing Companies, 2014-2016 (rufiyaa per kilogram) MVR17.0 per kilogram, respectively during H1- 20 150 2017. However, prices of yellowfin tuna were 19 125 volatile and averaged MVR67.7 during the first 18 100 half of 2017, down from an average of MVR76.3 17 75 during the same period of 2016. It is noteworthy 16 50 that prices rose toward the end of the period and 15 25 closed at MVR85.0 in June 2017, reflecting a decline in supply during the month of Ramadan (Figure 8). The improvement in the sector was also evidenced 14 2014 2015 2016 Iced skipjack tuna (left axis) 0 2017 Skipjack tuna (left axis) Yellowfin tuna (right axis) Source: Ministry of Fisheries and Agriculture by an increase in volume of fish exports during the period. Volume of fish exports increased significantly by 70% in H1-2017, and amounted to 40.4 thousand metric tons in H1-2017 (Figure 9). While export volumes of frozen skipjack tuna and frozen yellowfin tuna grew significantly, volume of fresh or chilled yellowfin tuna exports fell during the period. Figure 9: Volume of Fish Exports, 2014-2017 (annual percentage change) 600 500 400 300 200 Construction Sector 0 The construction sector continued to show a strong -100 performance supported by robust credit growth -200 2014 and various government infrastructure projects. Key infrastructure projects includes the ChinaMaldives Friendship Bridge, National Diagnostic Centre and expansion of Velana International Airport, the Male’ re-development project. The considerable increase in the demand for real estate led by easier access to finance also contributed to the sector growth during the period. These 12 100 Quarterly Economic Bulletin - June 2017 2015 Volume Source: Maldives Customs Service 2016 Earnings 2017
19. developments were reflected in the import of construction-related items , which grew by 19% annual increase during the period. In addition, commercial bank credit to the sector recorded an annual growth of 21% during the period, primarily due to a rise in loans for residential housing, new resort development and guesthouses. Wholesale and Retail Trade Sector As for developments in the wholesale and retail trade sector, activity in the sector improved as shown by the main indicators of the sector. Private sector imports (excluding tourism) increased by 34% in annual terms during H1-2017 and totalled US$670.3 million. As for commercial bank credit to the sector, it increased by 4% in annual terms at the end of the first half of 2017. However, credit to the sector grew at a slower pace than the corresponding period of 2016 where 22% growth rate was recorded. Figure 10: Inflation (National), 2014–2017 (annual percentage change) 15 10 5 0 -5 -10 2014 2015 2016 2017 Infation Inflation excluding fish Source: National Bureau of Statistics Inflation Following a year of low and stable inflation, the rate of inflation in H1-2017 accelerated considerably. The rate of inflation (as measured by the annual percentage change in Consumer Price Index [CPI] at the national level) accelerated to 3.8% in H1-2017 after recording 0.7% in H2-2016 (Figure 10). This was almost entirely driven by domestic factors, especially due to some policy changes that came into effect between the last quarter of 2016 and June 2017. Quarterly Economic Bulletin - June 2017 13
20. The base effect of the reduction in food subsidies in October 2016 continued into the subsequent quarters . This can be observed from a significant rise in the inflation rate of the food category during H1-2017. Food prices which accounted for 26% of the CPI basket rose by 8.4% in H1-2017 (Figure 11). Food inflation during the period was observed to be largely driven by staple food items (rice, sugar and wheat flour) and volatile fish prices. Consequently, other food items such as bread and short eats also increased reflecting the growth in price of staple food items. However, it is noteworthy that the base effect of the subsidy reduction has started to dissipate during the period. Figure 11: Inflation rates of selected categories of the CPI (National), 2016–2017 (annual percentage change) 10 8 6 Looking at fish prices (which make up 33% of the food category), it also increased markedly by 3.8% in H1-2017. However, it is noteworthy that the contribution of fish prices to total inflation was less significant than other food prices (Figure 12). This 4 2 0 -2 -4 Food Housing & utilities Furnishing & household equipments H2-2016 is evidenced by the higher rate of total inflation excluding fish prices which stood at 5.6%. Further, food inflation excluding fish prices also stood higher at 9.6%, whereas total inflation excluding food prices were much lower at 2.2% during the period. Concurrently, price of fruits also increased during the period and was observed to be more pronounced in the month of May 2017. This was because of the increase in such prices at the beginning of the holy month of Ramadan which coincided with May. Another significant contributor to inflation was cigarette prices which recorded a growth of 29% in H1-2017. This was due to an upward revision 14 Quarterly Economic Bulletin - June 2017 Source: National Bureau of Statistics Transport H1-2017 Education Health Restaurants & hotels