Markets expects CPI to clock in at 4.88%; Policy Rate hike imminent

Pakistan Bureau of Statistics is expected to release Consumer Price Inflation Numbers on 1^st of January, Monday next year. The market expects the CPI numbers to clock in at 4.88% for the month of December, whereas, it expects month-on-month inflation to pick up by 0.21%.

“Inflation ….to grow by 0.17% in December, 2017 in contrast to an average monthly inflation of 0.46% during 5 – Month FY ’18”, said Mr. Arsalan Hanif of Arif Habib Limited.

“Depreciation impact on prices of petroleum products will be visible from Jan’18 as we assume prices will increase by PKR 7/liter in Jan’18 and PKR 3/liter in Feb’18.”

An in-depth analysis of the year 2017 reveals a significant contribution to CPI from Health, Education, Transport and Housing sectors. December inflation is expected to register an uptick from “increase in prices of petroleum products which directly linked with international oil prices”, estimates Mr. Arsalan Hanif.

Saad Hashmi of Topline Securities forecasts the CPI numbers to clock in somewhere between 4.9% - 5.00% for the month of December. “We see a jump in the inflation for month of December, 2017 as a result of low base during the Nov – Dec, 2016”, he remarked while speaking to MG Link News.

He also mentioned the ongoing upward trajectory of oil prices in international markets, and the subsequent impact thereof on the local economy. “The two major anchors for inflation, Petroleum Prices and Exchange Rate, observed day to day reveal an upcoming change in inflation during the first three months of 2018”.

Answering a question regarding the Interest Rate in year 2018, he said that “State Bank may pre-emptively raise rates by 25 basis points in January Monetary Policy Announcement”, however, overall market expects Central Bank to raise rates by 1% during the year 2018 given the fluctuations in Exchange Rate and increasing International Oil Prices.

“SBP will increase rates by 1% in the next year”, he cited the recent dollar depreciation as one of the key factors which according to him “will increase inflation by 0.5% - 1.00% during the year 2018.”  

According to News Reports, Government is currently mulling over raising Petroleum Prices by 5 Rupees from 1^st January which coupled with the recent Rupee devaluation will turn the tide of Interest Rates.