Annual inflation will fall sharply in the first half of January

Summary

We forecast fortnightly increases of 0.17% and 0.13% for headline and core inflation respectively in the first half of January. If our forecasts are correct, in YoY terms, headline inflation will post at 3.45% (compared to 4.08% at the close of 2014), whereas core inflation will come in at 2.65% (as against 3.24% in December). There are several factors responsible for low inflation in the first fortnight of the year. On the one hand, the falls in telephony prices as a result of the abolition of long-distance charges will translate into very low core inflation, with the “other services” component offsetting to a large degree the significant increases in the merchandise component. The increase in petrol prices on 1 January (1.9%) was lower than expected and much of it may be offset by the reduction in electricity tariffs. Furthermore, we forecast a decrease in fruit and vegetable prices, which will offset the increase in farm product prices, accounted for by hikes in egg and chicken prices. The new elements contributing to lower inflation in January have led us to estimate that inflation by year-end will be 3.2%

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