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CPI Preview: Inflation to hit 17-month low of 23.3% YoY

CPI Preview: Inflation to decelerate below 20% YoY
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February 28, 2024 (MLN): The sharp disinflation trend will continue in February, with the headline inflation expected to slow to 23.3% YoY, the lowest level in 17 months.

This significant slowdown is attributed to the favorable base effect coupled with a moderate monthly increase.

The monthly inflation is expected to rise 0.2% MoM, as compared to the last 12-month average of 2.11% MoM.

Accordingly, this will take the average yearly inflation of 8MFY24 to 28.05% YoY compared to 26.17% YoY in 8MFY23.

National Consumer Price Index 
  Feb 2024E Indices
  Weight YoY MoM Feb-2024 Jan-2024 Feb-2023
Headline CPI 100% 23.27% 0.20% 260.44 259.92 211.28
Food & Non-alcoholic Bev. 34.58% 19.12% -0.81% 287.41 289.77 241.28
Alcoholic Bev.& Tobacco 1.02% 66.41% 0.00% 365.13 365.13 219.42
Clothing & Footwear 8.60% 19.80% 0.15% 223.61 223.28 186.65
Housing, Water, Electricity, Gas & Fuels 23.63% 35.05% 1.01% 238.81 236.43 176.83
Furnishing & Household Equipment Maintenance 4.10% 24.96% 0.00% 261.81 261.81 209.51
Health 2.79% 19.89% 0.81% 236.49 234.6 197.25
Transport 5.91% 15.59% 2.63% 313.53 305.48 271.24
Communication 2.21% 17.54% -0.23% 134.41 134.73 114.36
Recreation & Culture 1.59% 28.78% 0.31% 257.20 256.41 199.72
Education 3.79% 13.32% 0.33% 186.76 186.15 164.8
Restaurants & Hotels 6.92% 22.57% 0.41% 264.53 263.45 215.81
Miscellaneous 4.87% 23.41% 0.24% 273.16 272.5 221.35

Monthly inflation is expected to see a moderate pace mainly due to a decline in food inflation, which is projected to fall around 80bps.

This is primarily driven by the fall in prices of Eggs, Tomatoes, Onions, and Potatoes.

On the flip side, the housing index is projected to experience around a 1% MoM increase

Moreover, the transport index is projected to experience around a 2.6% MoM jump, attributed to the inflated fuel prices.

It is worth mentioning that the Ministry of Finance had projected a higher inflation range of 26.5-27.5% for February in its January economic outlook report, possibly factoring in a gas price hike as part of the International Monetary Fund's conditions.

However, the hike was delayed which may cushion the inflationary pressure until March, as per the SPI data from the Pakistan Bureau of Statistics.

The ministry warned that the economy still faces “challenges” from supply chain disruptions and increased utility prices.

Inflation Sensitivity

With a 0.5% month-over-month (MoM) inflation rate, the annual headline inflation will stand around 17% by June 2024.

With a 1% MoM inflation rate, which is also significantly lower than the 12-month average of 2.1% MoM, the headline inflation will hover around 20% 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 2.1%.

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Posted on: 2024-02-28T11:31:58+05:00