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CPI Preview: Headline Inflation to ease off at 10.12% YoY in June’21

June 30, 2021 (MLN): The headline inflation for the month of June’21, is likely to ease off by 0.75% but continue to its double-digit trajectory on the back of food, housing, and transportation indices.

Going by the projections put forth by 10 brokerage houses, the inflation is expected to hover between 9.74%-10.9%. The average estimate is likely to stand at 10.12% in June’21compared to the inflation figure of 10.87% in the last month and 8.59%YoY in June’20. This would bring average inflation of FY21 to 8.74% as against 10.74% in the corresponding period last year, largely within the SBP’s estimate of 7-9% YoY CPI in FY21.

The expected inflation is in line with the projected figures posted by the Ministry of Finance in its latest Economic Outlook where the Ministry cited that inflation in June’21 is likely to settle within the range of 8.8% – 10.2%.

On a sequential basis, inflation is expected to increase with a modest uptick of 0.12% MoM in June’21 compared to the increase of 0.10% MoM in May’21, mainly due to soaring energy prices.

The trimming off MoM inflation in Jun’21 is likely to occur on the back of the expected deceleration of food indices by 0.10% MoM in Jun’21 compared to the 0.68% MoM rise recorded in May’21.

The overall decline in food inflation will likely attributable to the expected drop in non-perishable food indices by 0.91% in the midst of a decline in the price of Chicken by 27% and pulses by 1.71%. Further, Wheat and Sugar prices are likely to see a modest uptick by 0.64% MoM and 0.95% MoM respectively compared to May’21.

After keeping the fuel (HSD and MS) prices intact for two months despite an increase in international crude prices, the government has finally raised retail prices of petrol and diesel this month. Besides, an increase in LPG prices also contributes to the overall quantum of energy-related inflation for June.

On yearly basis, CPI is expected to reach 10.12% YoY in Jun’21 primarily due to probable increase in the indices of food (12.4% YoY), Clothing (10% YoY), Housing & Electricity (16% YoY), Transport (16% YoY) and Restaurant (9% YoY). The expected escalation in the transportation index will be attributable to the recovery in international and local petroleum prices by 83% and 43%YoY respectively against the recorded price in June’20.

It is pertinent to mention that any pressure from the IMF in terms of increasing energy prices will push the inflation rate. Further, any disruption in the foreign inflows and current account balance may hit PKR/USD exchange rate or Rupee stability.

 

 

CPI Projections for June 2021

YoY (%)

MoM (%)

Al Habib Capital

10.11

-0.21

Spectrum

9.74

-0.1

Abbasi and Company

9.9

-0.1

Foundation Research

10.1

0

shajar capital

10.1

0.1

Insight Research

10.2

0.1

Arif Habib

9.9

0.13

Sherman

10.9

0.21

Ismail Iqbal

10

0.24

Tauras Securities

10.23

0.88

Range

9.74 — 10.9

-0.21 —  0.88

Median

10.15

0.1

Mode

10.1

0.1

Average

10.12

0.13

 

With respect to the policy rate, the latest meeting of the Monetary Policy Committee unanimously decided to keep the policy rate unchanged at 7% in order to support the economic recovery while keeping inflation expectations well-anchored. The committee noted that since its meeting in Mar’21, further improvement has been witnessed in the overall domestic recovery, with the GDP forecast at 3.94% for FY21. Given this, the recent increase in inflation may be due to supply shocks to food and energy- a hike in energy tariffs earlier this year.

In order to achieve the growth target of 4.8%, numerous incentives have been given to the potential sectors in the federal budget of FY22 which will certainly make their way to reflect the positive result. However, it will take a reasonable period of time.

Copyright Mettis Link News

Posted on: 2021-06-30T16:31:00+05:00

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