CPI Review: Inflation to continue moderation in short-to-medium term

December 2, 2020 (MLN): The headline inflation for the month of Nov’20 decelerated to 8.35%YoY and 0.82% MoM, compared to 8.91% YoY and 1.7% MoM in the previous month, bringing the 5MFY21 CPI inflation to 8.76% YoY.

To highlight, this inflation figure came in slightly higher than market expectations, despite higher base effect.

The reasonable easing in November’s inflation figures has been witnessed mainly on the back of declining pace of inflation in food group and deflationary trend in housing and transportation index.

The Food & Non-Alcoholic Beverages inflation slowed down to 1.92% MoM from 3.90% in Oct’20, whereas, on yearly basis, the food index spiked to 15.1% YoY during the month. Moreover, a detailed examination of the key components within the group reveals that most of the increase in Food inflation was attributed to Chicken and vegetables. The price of chicken surged by 21.36% MoM, while Tomatoes by 15.68% MoM and Potatoes by 8.79% MoM. On the other hand, pressure on wheat and flour prices dropped by 4.83% and 4.1% MoM respectively.

The respite in inflation of transportation index came on the back of decline in motor fuel prices and transportation services by 2% and 2.25% MoM in the group respectively, which declined the overall group’s inflation by 2.25%.

Similarly, Power charges under Housing group declined 3.20% MoM and increased 9.89% YoY, dragging the overall Housing rent, Water, Electricity, Gas & other group inflation by 0.08% MoM in Nov’20.

On the other hand, the Core inflation remained firm during the month, particularly core urban inflation which remained unchanged at 5.6% YoY in Nov’20. While, a slight improvement in Core rural inflation has been recorded as it improved by 7.4% YoY, compared to 7.6% YoY in October and 7.8% YoY in September 2020.


With the recovery in international oil prices amid vaccine hopes and extension in production cuts, further revision in POL prices domestically is expected under the revised mechanism. The same is expected to support headline inflation in the coming months, says Taurus Securities.

Another report by Arif Habib Securities expects headline inflation to continue moderation in monthly inflation trend. One major factor supporting this expectation of contained inflation in short-to-medium term is reversal in volatile food prices.

To recall, SBP in its recent MPS kept policy rate unchanged and highlighted that there seems little to no threat on inflation from the demand side as aggregate demand still remains subdued thus, negating the fear of over-heating of the economy.

The core inflation, on the other hand, has been relatively stable. This should help SBP maintain status quo in the next MPS as well which is due in January’21, the report added.

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Posted on: 2020-12-02T18:46:00+05:00