CPI Preview: Consensus estimates for yearly inflation settles at 9.5% in May

May 31, 2019 (MLN): As the 11th month of the current  fiscal year nears end, the Pakistan Bureau of Statistics (PBS) is all set to release the numbers for Consumer Price Index (CPI) in the first week of June 2019 which will provide the measure to assess the current status of the economy.

Anticipating these results, several brokerage houses have put forth their projections for the CPI figures, based on previous performance and current economic factors. The projections of these research houses regarding CPI numbers are therefore listed below:

Keeping in view the above expectations, it is fair to say that the headline inflation (CPI) is expected to settle within a range of  9.2-9.64% YoY, with an average value of 9.47% in May-19, as compared  to 4.19 percent YoY in the same month of 2018 and  8.82% YoY in the month of April 2019, despite higher base effect.

On monthly basis, CPI reading is expected to increase by around 0.8-1.27%, with an average value of 1.11% as compared to an increase of 1.26% MoM in April-19. This will push average period inflation for 11MFY19 close to 7.2% compared to 3.8% last year.

This inflation outlook is subject to a number of factors include: rise in international oil prices, increase in food prices due to Ramadan factor, surge in petroleum prices and unfavorable movements in exchange rates which resulted in higher prices of imported products and upwards adjustment in tariff of utilities.

Mr. Yawar Zaman, Head of research at Shajar Capital, explained that the expected MoM increase in inflation is mainly driven by higher food prices due to Ramadan effect, higher international oil prices and currency depreciation after which prices of imported products increased.

While YoY rush in inflation is mainly due to increase in the heavy weight indices in the CPI basket namely food, transport and housing as they grew by 10.2%, 17% and 10% YoY respectively, he said.

Going forward, the number of upside risks from an expected rationalization of taxes in the upcoming budget, potential adjustments in electricity and gas tariffs, volatility in international oil prices, interest rate hike and PKR devaluation are expected to escalate the CPI numbers in the coming months further.

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