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CPI Preview: Inflation to ease in August’20 as higher base effect pitches in

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August 31, 2020 (MLN): The headline inflation for the month of August 2020 is expected to settle around 8.15%- 8.76% with an average estimate of 8.4% YoY compared to 9.30%YoY in the last month and 10.50%YoY in Aug 2019, as per the projections put forth by various brokerage houses.

This would bring 2mFY21 average inflation to 9% as against 9.4% in the corresponding period last year.

The softening of Inflation reading in August’20 is expected mainly on account of a favorable base effect which will keep the August inflation numbers subdued.

Due to this, the Food inflation that remained a key source of headline inflation lately is expected to take some breather in August’20. As according to weekly SPI data, Food prices have started to decline post Eid, while prices of few essential commodities such as wheat flour, sugar and rice have increased during the month.

On monthly basis, the inflation is expected to move up with an average estimate of 0.53% MoM compared to the inflation of 2.5% MoM in July 2020, mainly attributable to rise in motor fuel and electricity index which has offset higher base effect to some extent.

According to the report by Pear Securities, the expected escalation in CPI reading on monthly basis is owing to 9% MoM hike in Fuel Price Adjustment (FPA). To recall, ECC has approved FPA for Aug-Sep which was last adjusted in the bills of Jan’20. The 9% MoM increase in FPA would result in 40 bps rise in Aug’20 inflation, otherwise it would have been below 8% for the period under review.

Moreover, Govt has signed a MoU with the IPPs which would result in tariff decline. However, the government has planned not to pass on the impact to the end consumer instead paid for the circular debt. Similarly, another hike in petroleum prices on the card which escalates MoM inflation. Likewise, the prevailing monsoon season also poses threat for floods negatively impacting the agriculture crops which may also result in supply shocks and higher commodity prices, the report added.

In addition to this, the Transport Index is also expected to soar on monthly basis due to accretion in petroleum product prices as the petrol and diesel prices have gone up by 3.9% and 5% during the month.

CPI Projections for August 2020

YOY

MOM

Arih Habib Limited

8.16

0.58

Taurus Securities

8.20

-0.62

Ismail Iqbal Securities

8.60

1

Shajar Capital

8.42

0.83

AKD Securities

8.76

1.13

Darson Securities

8.50

0.85

Pearl Securities Ltd

8.26

0.68

IGI Securities

8.30

0.68

Aba Ali Habib Securities

8.49

0.88

Al Habib Capital Markets

8.56

-0.74

Spectrum Securities

8.35

0.50

Insight Securities

8.15

0.56

Range

8.76 – 8.15

1.13 – -0.74

Mode

0.68

Median

8.39

0.68

Average

8.40

0.53

Expected Average Inflation in FY21

9%

 

Overall inflation has remained curtailed owing to tepid aggregate demand in wake of country-wide Covid-19 lockdown. With lockdown now finally behind us, opening up of schools, restaurants and other public places could potentially prompt up monthly inflation in Sep-20, a report by IGI Securities says.

Besides, GOP is also mulling further increase in fuel and electricity prices, which will pose upside risk for inflation in next month as well. However higher base affect will keep inflation in check.

 

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Posted on: 2020-08-31T16:34:00+05:00

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