􀂉 April, for the first time in nine months, will likely report both yoy and mom declines in CPI inflation.
􀂉 The most important leading indicator for CPI inflation is the daily agriculture price index, which fell 9% at end April from Februray. This
implies a significant mom decline in the food index of CPI in April, which we expect to fall by at least 2% in April, leading to a mom
decline of 0.4% in headline CPI. On a yoy basis, CPI inflation should decline to 4.9% in April from 5.4% in March. We do not believe
that the seemingly hawkish statements from the government upon the March CPI report reflect any material change in monetary policy
stance.
􀂉 A common misperception is that wage and commodity price inflation will continue to drive CPI inflation up in H2 this year despite the
fall in agriculture prices. Our analysis shows that in the short term, the decline in agriculture prices in fact 5 times more impactful on CPI
than the impact of rising wage and oil prices on CPI. In addition, there is a 100% pass-through from agriculture prices to CPI, while the
pass-through from raw material prices to CPI is only 16%.
􀂉 The last manufacturing PMI came in at 52.9 in April, slightly weaker than the reading in March. However, the non-manufacturing PMI
rose sharply to 62.5 in April, up from 60.2 in March. The service PMI is 6.1 points above its historical average whilst the manufacturing
PMI is till 0.5 points below average. Overall, the theme of services outperforming goods is now playing out with concrete confidence. In
particular, construction and consumer services posted the most impressive PMI readings.