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CPI Preview: Gusty Winds

CPI Preview: Gusty Winds
CPI Preview: Gusty Winds
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May 31, 2022 (MLN): While eroding consumers’ purchasing power inexorably, the gusty winds of inflation have taken a charge to further dent the already crippled economy as the headline inflation for May 2022 is expected to settle around 13.5%-16.5% with an average estimate of 14.43% YoY compared to 13.4%YoY in the last month and 10.9%YoY in May 2021.

This would bring 11MFY22 average inflation to 11.31% as against 8.8% in the corresponding period last year. Meanwhile, on a sequential basis, the CPI is expected to escalate with an average estimate of 0.89% MoM compared to the increase of 1% MoM in May 2021, mainly due to spiraling prices of perishable and non-perishable food items.

Going by the Sensitive Price Index (SPI) data, the surge in average prices of wheat flour, eggs, onions, and pulses by 28% MoM, 12% MoM, 19% MoM, and 10% MoM, respectively will mainly contribute to the higher food index while a decline in essential food items like tomatoes and bakery & confectionery by 22% MoM and 16% MoM, respectively will keep the food index contained.

On the flip side, the housing index will likely drop on an MoM basis by 2.1% owing to the slash in electricity charges.

While, the YoY uptick in CPI will mainly be contributed by food, transport, household equipment, housing, restaurants & hotels, health, and miscellaneous by 19.6% YoY, 28.9% YoY, 15.4% YoY, 6.1% YoY, 15.5% YoY, 10.9% YoY, and 12.0% YoY.

The country is undergoing a severe economic crisis amid depleting foreign exchange reserves and a widening trade deficit. The cherry on the top is the political unrest has added much fuel to the fire where the coalition government had delayed the crucial economic decisions due to political pressure. Later, it had to increase rollback the subsidies partially as it seems that funding from IMF is the only resort for survival.

Not to forget, in the midst of all this chaos, the local currency remained most vulnerable as it lost over 13 rupees only in May 2022 while in FYTD, the PKR has plummeted by over 41 rupees against the greenback.

Despite all the bleak figures, the outlook by the Ministry of Finance expects that the YoY inflation will hover around 12.5%-13.8% in May 2022.

Although the economy of Pakistan has achieved GDP growth of 5.97 percent in FY2022, the fiscal situation and external sector performance are making it difficult to sustain and impacting the growth outlook in the coming year, the report highlighted.

International commodity prices are on a rising trend and are expected to increase further. The pass-through of the increase in global commodity prices is somewhat contained due to government measures. Even then it is expected that CPI inflation will remain double-digit in May 2022, it noted.

Side by side, the State Bank of Pakistan (SBP), in an attempt to fix the ongoing economic glitch while skipping the forward guidance, raised the policy rate by 150 basis points (bps) to 13.75%, bringing it to nearly a decade high.

CPI Projections for May 2022



BMA Capital 14.40 1.02
Optimus Capital 14.30 0.90
Alfalah CLSA Securities 14.40 1.00

Next Capital



Abbasi and Company



Sherman Securities



Al Habib Capital Markets



JS Global



Arif Habib Limited



Foundation Securities



Tauras Securities



Pearl Securities 16.50 2.90

Adam Securities












In the backdrop of rising fuel prices, possible imposition of indirect taxes, and a continuous surge in food inflation, CPI will remain elevated in months to come.

While analyst fraternity is of the view that the sharp reduction in subsidy would force CPI to cross around the 15% mark by the end of FY22.

With the recent development of partial reversal of petroleum subsidy and shortage of wheat, inflation is definitely not at all cooling down anytime soon. It is expected that this sharp surge in petroleum prices, post-subsidy reversal will steer the inflationary pressure in the following months, a report Arif Habib Limited noted.

Meanwhile, the MPC noted that the reversal of fuel and electricity subsidies will likely increase headline inflation temporarily and may remain elevated throughout the next fiscal year.

However, in FY24, inflation is expected to fall to the 5-7% target range subject to fiscal consolidation, moderating growth, normalization of global commodity prices, and beneficial base effects.

“As electricity and fuel subsidies are reversed, inflation is likely to rise temporarily and may remain elevated through FY23 before declining sharply during FY24. This baseline outlook is subject to risks from the path of global commodity prices and the domestic fiscal policy stance,” MPC cited.

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Posted on: 2022-05-31T10:18:25+05:00