CPI Review: Lower food inflation singlehandedly slows down inflation rate in Dec

January 2, 2020 (MLN): The national CPI for the month of Dec 2019 was recorded at 12.63% YoY against 5.4% YoY in Dec 2018 and 12.67% YoY in Nov 19.

According to the figures released by Pakistan Bureau of Statistics, on a MoM basis, CPI depicted a marginal decline of 0.34% in Dec 2019 against an increase of 1.34% in the last month.

Whereas, the average headline CPI during 1HFY20 came in at 11.11 % YoY.

On the regional side, urban inflation (UCPI) stood at 12.1% YoY versus a higher 13.6% YoY rural inflation (RPI) in Dec 2019.

During Dec 2019, Food and non- alcoholic beverages group was the primary driver to uptick in the Consumer Price Index mainly due to unfavourable weather conditions. The rise in other main contributors of this higher inflation rate includes; housing, utilities and transport.

The monthly decline in inflation numbers came from perishable food index, weighted 4.99% in CPI, as supply situation has relatively been restored by importing from Iran to meet domestic demand, resulting in a drop of prices of tomatoes an onion by 36.5% MoM and 12.45% MoM respectively.

According to Foundation Securities, it is expected that average inflation would remain in double digits and peak out at 11.3% in FY20 owing to the lagged effect of currency depreciation and energy price increase.

Regarding monetary policy implications, State bank of Pakistan (SBP) kept interest rate unchanged at 13.25% in the last monetary policy committee meeting of the year. With next monetary policy stance to be disclosed in this month, it is highlighted that settling in food inflation as the major reason which could lead to initiation or delay in a reversal of interest rate cycle as per the research of Pearl Securities.

According to Arif Habib and Fortune Securities, this higher than expected inflation figure has lowered the expectations of a rate cut in the upcoming monetary policy announcement of Jan’20.

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