CPI likely to clock in at 28.95% YoY: Economist Estimates

December 31, 2023 (MLN): The headline inflation for the month of December 2023 is expected to settle around 28.4% – 30.1% YoY with an average estimate of 28.95% YoY compared to 29.2% YoY in November and 24.5% YoY in the same month last year, as per the projections put forth by various brokerage houses/economists.

This would bring 1HFY24 average inflation to 28.68% as against 25% YoY in the corresponding period last year.

On a monthly basis, the inflation is expected to move up with an average estimate of 0.28% MoM compared to 2.7% MoM in Novmeber, and far below the 12-month average of 2.17% MoM.

The significant slowdown in monthly inflation pace is expected on the back of decreases in the food index, transport index , and housing index, a report by Arif Habib Limited noted.

The decrease in the food index is mainly due to lower prices of items such as fresh vegetables, onions, and potatoes.

Additionally, the transport index is expected to decline due to a MoM decrease in High-Speed Diesel prices, while the housing index will likely decrease primarily because of a decline in electricity charges on a MoM basis, the report added.

Outlook

After December, inflation is anticipated to start declining at a comparatively faster pace on the back of favorable base effect, lagged impact of monetary tightening, and other administrative measures.

Nevertheless, it is essential to acknowledge certain risk factors that could impact the inflation outlook, including the volatility in food and energy prices, possibility of another gas tariff adjustment in January 2024, albeit of a reduced magnitude, and the potential depreciation of the PKR against the USD, the report said.

Global oil prices are starting to climb back up amid red sea shipping woes, which can pose a threat to the inflation outlook.

Furthermore, the successful completion of the IMF review, along with additional loan programs, is crucial.

The remaining amount of $1.8bn under the SBA is still yet to be released.

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