CPI Preview: Inflation to hold around SBP’s target?

April 30, 2020 (MLN): Given the current environment, the headline CPI inflation may not spur any change in interest rates this time as the index is foreseen to stand on a single-digit figure at 8.65% YoY in April, lower than the previous month reading.

The world economic paradigm has changed a lot amid COVID-19 as central banks usually announce monetary policy based on mainly inflation and employment reading. Now, this pandemic has broken such a relationship.

Pakistan Bureau of Statistics will publish its inflation figures for the month of April’20 tomorrow that are always important market mover among other data releases.

Under the revised base year 2015-2016, the decline in CPI is anticipated on the back of a decline in transport and food index.

The transportation group which covers fuel prices and has high weightage in household consumption may contribute positively to the index as the slash in petroleum prices by Rs 15 per litre is likely to mark the lower inflation reading for April, thanks to the federal fiscal stimulus package to combat COVID-19 crisis. On top of that, the drop in LPG prices is expected to mitigate the effects of the increase in quarterly House Rent Index.

Meanwhile, decline in food index owing to extended lockdown to contain the virus spread, resulting in lower demand for perishable food items like tomatoes, fresh vegetables, dairy products, and onions along with abundant tomato crops. However, the increase in the price of pulses, fresh fruits, and eggs hamper further decline in the food index.

Considering the SPI data for the week ended April 16, 2020, the decline in interest rate by around 425 bps since March’20, and a sharp fall in international oil prices, the market analysts project the inflation numbers for the month of April which are given below.

CPI Projections for April 2020

Brokerage House



Spectrum Securities Limited



Abbasi & Co.



Ismail Iqbal Securities



Al Habib Capital Markets



Shajar Capital



Aba Ali Habib Securities



Arif Habib Limited




8.4% – 8.9%

-0.49% – -1.6%










In line with market consensus, we expect the CPI reading to slide further and come in a one-digit figure within a range of 8.4% – 8.9%. Therefore, average inflation for the month of April’20 is likely to clock in at 8.65% YoY as compared to 10.24% YoY in the month of March 2020 and % YoY in the same period last year.

Thus, average inflation during 10MFY120 stands within the range of 11% YoY- 12% YoY which is also SBP’s targeted average inflation for FY20.

With regards to the outlook for inflation, it is expected that further reduction in petroleum prices on the back of sharp fall in international crude oil price, ordinance issued against hoarders amid fears of rising food prices along with the improvement in the current account deficit on lower import bill will ease the inflationary pressures in the coming months, Arif Habib research specified.

However, State bank of Pakistan keeps an eye on current situation owing to lockdowns where the economy is battling against COVID-19 spread, it is expected further monetary easing by SBP in the upcoming MPC meeting scheduled in May’20 as the inflation outlook will likely get softer on lower demand prospects in coming years, revealed research by Abbasi and Company.

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Posted on: 2020-04-30T11:07:00+05:00