March 31, 2020 (MLN): The arrival of the new month i.e. April 2020 might surprise many by bringing along much-awaited single-digit inflation numbers for the month of Mach 2020.
If that happened, it would be the lowest inflation reading since July 2019.
Following the previous month, in which the headline inflation was decelerated to 12.4% YoY and dropped 1.04% MoM, the National CPI is expected to fall further during March 2020.
This time the substantial downturn in inflation is expected on the back of sizeable adjustment in Electricity tariffs in last month, the recent reduction in petroleum product prices amid slump in international oil prices and economic slowdown and the higher base effect.
Taking hint from the SPI data for the relevant weeks, the other factors responsible for shrinking CPI pace were lower transport index as a result of the cut in petroleum prices, the decline in prices of essential food items such as tomatoes, fresh vegetables, pulses and chicken and the decline in restaurants and hotel index. The further respite is expected from unaffected education index due to closure of educational institutes amid COVID-19 outbreak.
More importantly, SBP also lifted its wait and see approach and took the sharpest move in a decade by first slashing the policy rate by 75 bps, however, right after one week of its MPS announcement of 75bps cut, SBP further slit policy by 150bps, in the wake of COVID-19 outbreak and softer inflation outlook as SBP expected that the persistent weakening in international oil prices would reduce the inflation level going forward.
Furthermore, the survey below also supports our view in which some market participants believe that inflation will slip to single digit in March 2020 owing to above-mentioned factors and prevailing lockdown situation which disrupted consumer spending and economic activity.
CPI Projections for March 2020
Arif Habib Limited
Ismail Iqbal Securities
Spectrum Securities Limited
Aba Ali Habib
However, the impact of ongoing lockdown situation which not only dropped consumer sentiments but also distressed production and supply activities is difficult to assess on inflation as it could hit the prices of essential food items, but sluggish economic activity and persistent weakening in oil prices are expected to keep inflationary pressure on the lower side.
Going forward, the inflation is expected to remain low considering the prevailing lockdown which upended people's life, however, the price hike due to Ramazan would likely contain inflation to fall significantly.
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