CPI Review: Inflation to reach double digits in 4Q

April 02, 2021(MLN): Widespread COVID-19 vaccine rollout has boosted sentiments in most economies. However, commodity prices are on the rise due to synchronization, transmitting into higher inflation. Pakistan Bureau of Statistics (PBS) released Mar'21 inflation figure wherein National Consumer Price Index (NCPI) rose to 9.05% YoY, after it slipped to a two-year low of 5.65% on high-base effect in Jan’21.

The MoM 0.36% rise in NCPI in Mar’21 was mainly due to a rise in Food indices by 1.7% MoM, Clothing and Footwear indices surged by 1.0% MoM and Furnishing & Household increased by 1.0% MoM, which was partially offset by a 1.66% MoM decline in housing and utility segment due to decrease in electricity price driven by fuel cost adjustment.

Under the Food and Non-alcoholic Beverages group, a significant increase was observed in prices of Chicken, Eggs, Vegetables and Fresh Fruits by 8.9%, 13.7%, 10.9% and 8.4% respectively. While electricity tariff and kerosene index dipped 8% and 5.2% MoM respectively in housing and utility index.

On a YoY basis, Food, Housing, Furnishing, Transportation and Restaurants indices have surged respectively by 11.6%YoY, 9%YoY, 9%YoY, 3%YoY and 8%YoY in Mar’21 compared to Mar’20 indices, the research by Shajar Capital highlighted.

Core inflation in March, however, increased marginally by 0.2% MoM. Urban core inflation is 6.3% against 6.4% in February. Rural core inflation also fell to 7.3% from 7.7% in the previous month. During 9MFY21, Urban and Rural core inflation have averaged 5.7% and 7.6%, respectively.

The average NCPI during 9MFY21 arrived at 8.35%, as against the average NCPI of 11.53% YoY in SPLY, largely within the SBP’s estimate of 7-9% YoY CPI in FY21.

Commenting on inflation's future outlook, Fahad Rauf, Deputy Head of Research at Ismail Iqbal Securities said, ‘Core inflation continues to remain muted, clocking in at 6.7% YoY (0.2% MoM), which is important from a monetary policy perspective. The gap between headline and core is expected to continue as pending electricity tariff adjustments and higher food prices in Ramadan would keep the headline inflation elevated.’

Inflation is expected to remain in double digits in 4QFY21 due to the low base effect, high food inflation and energy price increase. Research analyst, Zeeshan Azhar at Foundation Securities forecasted higher inflation in FY22 on the back of the higher increase in energy price along with additional revenue measures amid IMF program resumption. Thus, he expects average inflation at 9.1/9.5% YoY in FY21/22.

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