CPI Preview: Sailing in rough seas

April 30, 2022 (MLN): Since the political and economic landscape of the country remained bumpy throughout the month, the end consumers have been forced to sail through rough seas as the headline inflation for April 2022 is expected to settle around 12.3%-13% with an average estimate of 12.76% YoY compared to 12.72%YoY in the last month and 11.1%YoY in April 2021.

This would bring 10MFY22 average inflation to 10.96% as against 8.6% in the corresponding period last year. To note, this is within the range of SBP’s inflation forecast wherein it has revised the inflation forecast upward to slightly above 11% in FY22 in the wake of political unrest, widening trade deficit, PKR depreciation, and depleting foreign exchange reserves.

Meanwhile, the estimated inflation number for April 2022 is marginally above the expected range of 11.5 to 12.5% of the Monthly Economic Update & Outlook by the Ministry of Finance.

On monthly basis, the inflation is expected to move up with an average estimate of 1.06% MoM mainly due to Ramadan and Eid festivities as the price of food and clothes have been substantially increasing, compared to the inflation of 0.4% MoM in April 2021, as per the projections put forth by various brokerage houses.

CPI Projections for February 2022

CPI YoY%

CPI MoM%

Adam Securities Limited

13

1.3

Insight Securities

12.8

1.1

Intermarket Securities

12.3

0.6

Abbasi and Company Limited

12.93

1.2

JS Global

12.5

0.8

AKD Research

13

1.3

Al Habib Capital Market

12.8

1.1

Arif Habib Limited

12.75

1.06

Sherman Securities

12.8

1.1

Average

12.76

1.06

Range

12.3-13

0.6-1.3

10MFY22

10.96

Within the food basket, the prices of meat, cooking oil, fresh fruits, and vegetables prices will remain elevated mainly on the Ramadan effect along with the higher international Palm oil prices and threats of supply disruptions as Indonesia halted exports of palm oil.  

On the other hand, the housing index is expected to witness a drop on an MoM basis by 0.3% due to a cut in electricity charges.

Not to forget, the increasing international commodity prices not only kept inflation elevated but also burdened Pakistan’s external account, creating macroeconomic imbalances in the economy.

With a rising trend in imports of goods and services due to the rise in international commodities prices amid geopolitical risks, the current account deficit (CAD) is expected to stay around $1 billion in the coming months, the monthly outlook of April 2022 by Ministry of Finance revealed.

However, in April 2022, it is expected that remittances may surge on account of the Eid festivities.

Outlook:

Inflationary pressure will likely continue in the upcoming months owing to the expected rollback of subsidies.

Pakistan is in dire need of external support and resuming the IMF Program calls for the removal of the Relief Package that was implemented by the previous government in order to protect the masses from rising inflationary pressure from oil prices, Wajid Rizvi, Head of Strategy and Economy at JS Global said.

While this could either be phased out in a piecemeal fashion or with a one-off blow. This unpopular move will be necessitated in an attempt to obtain external funding from IMF and other bilateral lenders, he added.

Inflation along with rising interest rates also created concerns about an economic slowdown while the substantial hike in cutoff yields has provided the room to anticipate the rate hike by SBP in its upcoming monetary policy.  

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Posted on: 2022-04-30T12:31:43+05:00

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