October 01, 2023 (MLN): The eroding purchasing power has been casting a grim and unyielding pall over the lives of ordinary citizens in Pakistan. September 2023 will be no different as the headline inflation for September 2023 is expected to settle around at 30.54% – 31.6% with an average estimate of 31% YoY compared to 27.4% YoY in the last month and 23.2% YoY in September 2022.
This will take the average inflation of 3MFY24 to 28.9% YoY compared to 25.1% YoY in 3MFY23.
On a sequential basis, the CPI would likely surge by around 1.6% MoM compared to the 1.7% MoM increase in the month of August 2023.
The estimated inflation numbers for the month of September are in line with the projection put forth by the Ministry of Finance which stated that the inflation is expected to remain in the range of 29%-31%.
The YoY surge in inflation is attributed to the burden of rising petroleum prices, electricity bills and the doubled cost of basic necessities specifically food prices over a mere 1.6 years of PDM government casts a dull hue over every meal.
On the policy front, the State Bank of Pakistan (SBP) attempted to reign inflation by adopting the contractionary monetary policy. Since September 2022, SBP has been increasing the policy rate by 1,450 basis points but the real interest rate is still hovering in the negative territory at 8.96%.
In the last MPC meeting, the central bank kept the policy rate at 22% on the back of lower inflation caused by the high base effect and ease in international commodity prices.
The decision came in contrast with the market expectations wherein the majority of market participants were in consensus on a rate hike by 100-200bps.
Outlook:
However, it is important to mention that the government's stern administrative action against the unlawful foreign exchange dealers and hoarders in commodity markets is stabilizing the exchange rate, which would provide a respite to the imported inflation and easing out commodity prices.
At the same time, the upward adjustment in energy tariffs is further likely to encourage inflationary pressures in the coming months.
Most of all, the country is under a Standby Agreement with the IMF, and that too on stricter terms pertaining to energy tariffs, rolling up subsidies, and increasing revenue collection.
The results of this SBA program are here in the face of countrywide protests due to excessive billing linked to fuel adjustment charges and taxes.
In addition, the global volatile prices of commodities mainly oil in the international market will remain the key component to aggravate and calm the inflation tides.
Copyright Mettis Link News
Posted on: 2023-10-01T23:05:57+05:00
