CPI Review: Higher food index drives up the consumer price Index

December 5, 2019 (MLN): The annual headline inflation clocked in at 12.67% YoY (new base 2015-16) in November when compared to 11.04%YoY in October and 5.70% in November 2018. 

Pakistan Bureau of Statistics (PBS) released the annual national headline inflation numbers yesterday. The figures for the month are on the higher side as per market expectations.

The primarily causal factor for this increase in CPI number was the food index which went up to 18.6% YoY and 3.20% MoM on the back of an increase in prices of perishable food items especially tomato prices, accounting more than half MoM inflation. To end this supply disruption, govt. has decided to import tomatoes from Iran which might normalize the food inflation next month. 

The other main contributors of this higher inflation rate include clothing and footwear; housing, utilities and transport.

CPI included Urban and Rural Price Index, where urban inflation (UCPI) stood at 12.1% YoY versus a higher 13.6% YoY rural inflation (RPI).  

According to the Fortune Securities, this monthly CPI may largely be the peak of monthly inflation for FY20 as the latest SPI numbers have indicated towards fading of inflationary outruns from food items but the recent surge in food inflation will take time to settle.

Whereas, Foundation Securities expects average inflation to be around 11% in FY20 owing to the lagged effect of currency depreciation and a hike in energy prices.

As it is expected that after Jan’20, the inflationary pressures will ease down and conclude FY20 in a single-digit inflation number, conditional to no supply shocks.

With the aforementioned expectation, a stage might set for the central bank to ease its monitory cycle. A rate cut of 25bps -50 bps is expected in the Mar’20 as per BIPL securities. However, BIPL Securities expects the central bank will maintain the status quo in the next MPS. 

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