CPI Preview: Inflation's reign of terror continues

May 01, 2023 (MLN): The scourge of inflation has mercilessly ruined the economy, especially in the last year, leaving the already destitute citizens alike in dire straits as the pitiless onslaught of skyrocketing prices has left them at the mercy of a system that cares nothing for their woes.

The excitement to know about the upcoming Consumer Price Index (CPI) numbers for the month of April has been wearing off in the market since the reality is known and experienced by everyone. However, we have made our estimations, and unsurprisingly, the numbers not only would be in double digits but the magnitude is also going to be expanded.

The headline inflation for April 2023 is expected to settle around 36.5% - 38.2% with an average estimate of 37.18% YoY compared to 35.4% YoY in the last month and 13.4.% YoY in April 2022.

This will take the average inflation of 10MFY23 to 28.2% YoY compared to 11% YoY in 10MFY22.

On a sequential basis, the CPI would likely surge by around 3% compared to the 3.7% MoM increase in the month of March 2023.

The estimated inflation numbers for the month of April are largely 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 36%-38% for April 2023.

The expected surge is attributed to the rise in food and clothing prices, portraying Ramadan and Eid effect. Meanwhile, currency depreciation and rising energy prices have kept inflation elevated.

SBP, being the supreme authority has tried hard to crush the ugly head of inflation by playing the strings of interest rate on higher notes. However, no noticeable result is seen yet.

In its latest MPC meeting, the SBP decided to raise the policy rate to an all-time high by 100 basis points (bps) to 21%.

The authority considered the current monetary policy stance appropriate and stresses that the decision, along with previous accumulated monetary tightening, will help achieve the medium-term inflation target over the next quarters.

Although global commodity prices are showing a downward trend, however, in Pakistan, the prices are still on the higher side compared to the pre-pandemic level. A slow recovery from flood-led damages has caused the supply of essential crops to remain short of domestic requirements consequently intensifying inflation, the latest report issued by the Ministry said.

Although, SBP is enacting contractionary monetary policy inflationary expectations are not settling down. The federal government, in liaison with provincial governments, is closely monitoring the demand-supply gap of essential items and taking necessary measures to ease out inflationary pressures, it added.

Outlook:

Considering the present economic condition and IMF conditionalities, the next few month's headline inflation is likely to remain elevated owing to the low base effect.

However, according to the analyst fraternity, the trend would start to be tamed around in the second half of the current year (2023) mainly due to the high base effect.  

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