CPI Preview: Inflation likely to clock in at 24.17% YoY in December

December 30, 2022 (MLN): The headline inflation for the month of December 2022 is expected to settle around 21.30% YoY – 25.3% YoY with an average estimate of 24.17% YoY compared to 23.84% YoY in the last month and 12.3%YoY in December 2021.

This would bring 6MFY23 average inflation to 24.96% as against 9.8% YoY in the corresponding period last year.

On monthly basis, the inflation is expected to move up with an average estimate of 0.59% MoM compared to 0.8% MoM in November 2022, as per the projections put forth by various brokerage houses.

Due to recent floods and supply shocks the price of foods such as milk, wheat, fresh fruits, chicken, and wheat products can lead the inflation index upwards.

On the other side, inflation in the transport sector will remain lesser due to a drop in petroleum and diesel prices.

It is expected that food insecurity would fuel inflation massively upwards along with other components thus pushing the policy rate towards 20-23%, a report by BMA Capital said.

Due to the high dollar rate and shortage of foreign exchange, the imports have become more expensive, and later the burden of exceeding cost would be transferred to the end consumers.

Moreover, SBP also revised its inflation expectations for FY23 to 21-23% from 18-20% previously.

While speaking to MG Link News, Head of Research Fahad Rauf said, there will be no major change expected in CPI for December, as in this month prices of food always remained low at the end of the year.

Rupee depreciation is a key factor behind the surge in inflation, he added.

 “CPI to start come down in the second half of the current year 2023, on a high inflation base,” he noted.

In order to avoid financial defaulter, the country needs foreign funding from IMF Program, China, and other bilateral and multilateral countries.

In the current fiscal year, the government needs over 32 billion dollars to repay its foreign payment.

To note, the government has reduced the petroleum prices in recent meetings but electricity adjustment is still pending.

Outlook:

Going forward, inflation in FY23 will continue to remain high due to ongoing tightening economic policies.

Owing to the seasonal effect of winter and gas shortage, inflation is likely to rise in the housing sector as the price of liquefied hydrocarbons and firewood rises.

According to Sana Tawfiq, Banking Analyst at Arif Habib Securities, it is expected that pressure mainly emanates from any further energy tariff hikes, weaker currency against the greenback and surge in food prices.

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