CPI Preview: Inflation to decelerate below 20% YoY

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By Abdur Rahman | March 31, 2024 at 12:45 PM GMT+05:00

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March 31, 2024 (MLN): The headline inflation is expected to decelerate significantly to around 19.84% YoY in March, the lowest level in 22 months.

This significant slowdown is attributed to the favorable base effect coupled with a moderate monthly increase. Thus, real interest rate will turn positive for the first time in over three years.

The monthly inflation is expected to rise 1% MoM, below the last 12-month average of 1.75% MoM.

Despite the influence of Ramadan factor, inflation outlook is moderate on account of government's resolve of curbing inflationary pressure by instituting administrative measures.

Accordingly, this will take the average yearly inflation of 9MFY24 to 27.11% YoY compared to 27.19% YoY in 9MFY23.

National Consumer Price Index 
  Mar 2024E Indices
  Weight YoY MoM Mar-2024 Feb-2024 Mar-2023
Headline CPI 100% 19.84% 1.00% 262.61 260.01 219.14
Food & Non-alcoholic Bev. 34.58% 14.51% 0.53% 286.56 285.06 250.25
Alcoholic Bev.& Tobacco 1.02% 3.53% 0.00% 365.61 365.61 353.14
Clothing & Footwear 8.60% 14.73% 0.45% 225.44 224.43 196.5
Housing, Water, Electricity, Gas & Fuels 23.63% 38.10% 2.62% 246.92 240.63 178.8
Furnishing & Household Equipment Maintenance 4.10% 19.54% 0.00% 263.23 263.23 220.2
Health 2.79% 21.47% 2.09% 240.32 235.39 197.84
Transport 5.91% 12.88% 1.40% 316.29 311.93 280.2
Communication 2.21% 14.71% 0.15% 134.94 134.74 117.64
Recreation & Culture 1.59% 24.31% -0.20% 255.90 256.41 205.86
Education 3.79% 11.30% -0.21% 185.76 186.15 166.9
Restaurants & Hotels 6.92% 18.18% 0.26% 264.84 264.17 224.1
Miscellaneous 4.87% 21.34% 0.23% 275.29 274.65 226.88

Monthly inflation pace is largely driven by the increase in Food, Housing, and Transport index.

The increase in Food index is primarily attributed to inflated prices of Potatoes, Fresh Vegetables, Onions, and Tomatoes.

Meanwhile, the housing index is anticipated to increase mainly due to a rise in gas tariff and LPG prices.

Furthermore, the increase in petroleum product prices is expected to keep the transport index elevated.

Inflation Sensitivity

With a 0.5% month-over-month (MoM) inflation rate, the annual headline inflation will stand around 16.7% by June 2024.

With a 1% MoM inflation rate, which is also significantly lower than the 12-month average of 1.75% MoM, the headline inflation will hover around 19% by fiscal year end.

The following chart maps out the yearly inflation trajectory based on monthly inflation rates of 0.5%, 1%, 1.5%, and the 12-month average of 1.75%.

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