CPI Review: Divergent trend in Food index limits monthly surge in headline inflation

September 2, 2020 (MLN): The headline inflation for the month of August 2020 stands at 8.21% YoY as compared to 9.3% YoY in the previous month and 10.54% YoY in August 2019. The figure was within the expected range but below average market expectations.

On the monthly basis, the inflation moved up by 0.63% MoM primarily due to surge in Housing group index (1.79% MoM) combined with higher Transportation inflation (2.69% MoM).

The hike in housing group inflation was owing to 12% MoM increase in electricity prices under monthly fuel price adjustment mechanism, while the increase in transportation was due to 5.41% MoM increase in transport services and 3.34% MoM upsurge in motor fuel prices.

On the other hand, the Food index that remained a key source of headline inflation lately saw a divergent trend, declined by 0.8% MoM which limited the increase in CPI numbers.

Cumulatively, the average inflation during first two months (Jul-Aug) of FY21 settled at 8.76% YoY compared to 9.45% YoY in the corresponding period last year.

Moreover, in the coming months, the headline inflation is expected to remain on lower side as higher base effect kicks in from August’20 till January’21, a report by Aba Ali Habib Securities highlighted.

It further stated that the increase in energy prices, food price shock as a consequence of flood and locust attack and expansion in money supply remained the upside risk to upcoming inflation numbers.

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