CPI Preview: Inflation to decelerate below 20% YoY

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.

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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