Falling non-food prices were the major driver of a lower inflation outturn in June. Inflation has risen consistently month in month out on a y.o.y basis since November 2016 effectively overturning a deflationary era in February 2017. Annual inflation came in at 0.31% in the month of June down by 0.43 percentage points from the May level of 0.75%. A sharp dearth in non-food items prices, which slipped into a deflation, saw inflation break a 7 months rally. While year on year inflation remained in the positive territory month on month inflation however slipped into the negative territory coming in at -0.2% down from 0.03% in May. Non-food items have a combined weight of 66.5% on the benchmark consumer basket hence influencing overall direction inflation takes, more.

The recovery in non food inflation over the years has been more gradual compared to that of food and alcoholic beverages, coming from a low of -3% in Oct-15 to 0.03% in May-17. The cost of capital goods, furniture and other related products typically rises at a much slower pace compared to food items which are more elastic.

Within the food and non alcoholic inflation category bread and cereals defied the broader trend to register a year on year gain. The item has been rising faster against the tide over the years due to drought conditions while in the immediate past the lean period effect was factored. Regulation in terms of floors set has played a role in sustaining the sharp increase. The dearth in overall food is driven by the gradual softening of food prices previously regulated through SI20,which was later reversed.

The recovery in non food inflation over the years has been more gradual compared to that of food and alcoholic beverages, coming from a low of -3% in Oct-15 to 0.03% in May-17. The cost of capital goods, furniture and other related products typically rises at a much slower pace compared to food items which are more elastic.

Within the food and non alcoholic inflation category bread and cereals defied the broader trend to register a year on year gain. The item has been rising faster against the tide over the years due to drought conditions while in the immediate past the lean period effect was factored. Regulation in terms of floors set has played a role in sustaining the sharp increase. The dearth in overall food is driven by the gradual softening of food prices previously regulated through SI20,which was later reversed.