MOZAMBIQUE: Headline inflation decelerated in August for a sixth consecutive month to 4.9 percent y/y, down from 5.7 percent in July.
After peaking at 10.8 percent y/y in March, the pace of inflation has slowed as both food and transport inflation eased. In August, food inflation came in at 3.7 percent y/y, down from 4.9 percent in July as prices of vegetables dropped. Meanwhile, transport inflation came in at 5.7 percent y/y, down from 7.9 percent in July due to a 2.8 percent reduction in diesel prices in August. On a month-on-month basis, inflation declined by 0.12 percent versus 0.34 percent in July.
We note that the disinflationary trend is due to much lower food prices, given the favourable agriculture production, combined with the current restrictive monetary policy (cash reserve requirement ratio in local and foreign currency stands at 28.5 percent and 28.0 percent respectively, with the MIMO policy rate at 17.25 percent). The Banco de Moçambique (BDM) targets single-digit inflation, and the latest prints affirm our view that inflation will remain within the central bank’s target range throughout 2023. More so, we maintain our stance that the BDM will cut the policy rate by 50bp at the MPC meeting later this month (22 September).