CPI Preview: Inflation to make a comeback in February’21

February 28, 2021 (MLN):  The inflationary relief that has been seen for the past two months (Dec’20 and Jan’21)  will no longer be sustained as the headline inflation for the month of February 2021, is likely to witness a sharp rebound after slipping to a two-year low of 5.65% on high-base effect and muted food inflation in Jan’21.

Going by the projections put forth by various brokerage houses, the inflation is expected to clock in at around 8.15%-9.1% with an average estimate of 8.48% YoY compared to 5.65%YoY in the last month and 12.40%YoY in February 2020. This would bring 8MFY21 average inflation to 8.23% as against 11.70% in the corresponding period last year.

However, the Ministry of Finance in its latest Economic Outlook projected February's inflation to remain between 5.5% to 7.5%.

On monthly basis, inflation is expected to escalate with an average estimate of 1.56% MoM compared to the decrease of 0.21% MoM in January 2021.

The expected resurgence in the cost of living is driven by an increase in electricity and food prices as indicated by the Sensitive Price Index (SPI) data so far. The food index which is expected to inflate by around 12.81% YoY during Feb’21, the major contributors to the upsurge in food inflation include; wheat flour (13.59% YoY), rice (7.71% YoY), meat (10.37% YoY), chicken (32.70% YoY), fresh milk (14.35% YoY), cooking oil (12.94% YoY), vegetable ghee (16.60% YoY), sugar (19.59% YoY) and condiments (47.21% YoY).

In addition to this, the recent revisions in electricity tariffs and fuel prices (+5.4%MoM) on account of the Oil bull cycle are also likely to pull up inflation for Feb’21. To note, the Government has notified an increase in base tariff of PKR1.95/unit across all consumer categories including life-line consumers and Dec’20 fuel price adjustment of PkR1.54/unit pushing up overall housing index by 4.44%MoM, a report by AKD Securities highlighted.

Besides these, cotton cloth, education, and footwear prices also increased significantly during the month leading to an increase in Non-Food Non-Energy (NFNE) inflation.

CPI Projections for February 2021






Next Capital



Pearl Securities



Abbasi and Company Ltd



Foundation Securities



Ismail Iqbal Securities



Aba Ali Habib Securities



Darson Securities



AKD Securities



9.1 – 8.15

2.1 – 1.29









Expected Average Inflation in 8MFY21




With the end of the higher base effect in Mar'21, the headline inflation is expected to start peaking up, further increase in oil prices, upcoming Ramadan season and hovering food prices expected to take inflation towards the north.

Furthermore, in the medium run, IMF directives to increase tax revenues in FY22 to PkR5.9 trillion vs. revised PkR4.7 trillion for the current year should result in inflationary pressure jacking up. To this end, the Govt. is already considering withdrawing sales tax exemptions worth PKR 360 billion which would push up consumer end prices.

IMF and Pakistan authorities completed a staff-level agreement which is yet to be approved by the IMF Board. The resumption of the IMF program is clearly positive from the market’s perspective as it will keep the external account in a comfortable position despite potential pressure from the pickup in imports in line with economic activity and rising commodity prices, pushing SBP to maintain interest rates at the current level, AKD Securities cited.

Moreover, it will open ways to raise /rollover debt through Eurobond, Sukuk, and Panda Bonds and provide stability on the external as well as the fiscal front, another report by Pearl Securities said.

Next Capital sees inflationary pressures continuing and expects the readings to reach double-digit by the end of the current fiscal year, with higher energy and food prices where some ease is being witnessed in vegetable prices.

On the monetary policy side, Pearl Securities perceives no signs of early increase and decrease in policy rates. Similarly, AKD Securities expects SBP to keep interest rates on hold in at least the next two monetary policy meetings based on a stable external account outlook (USD 750 million-1bn Eurobond planned next month).

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Posted on: 2021-02-28T18:03:00+05:00