CPI likely to settle at 12.97% YoY in Jan’22

We expect Jan’22 inflation to settle at 12.97% YoY compared to 5.65% in Jan’21 and 12.28% in Dec’21, respectively. This will take the 7MFY22 average inflation to 10.24% compared to 8.21% in 7MFY21. The YoY uptick in CPI will likely be led by Food (12.5% YoY), Clothing & Footwear (13.3% YoY), Alcoholic Beverages & Tobacco (2.2% YoY), Housing (15.0% YoY), House Hold Equipment (13.5% YoY) and Miscellaneous (9.4% YoY).

Monthly inflation to post an increase of 0.4%

On a MoM basis, CPI reading is expected to increase 0.4%. While Housing and Transport index are likely to keep MoM inflation up, food index is expected to decline 0.7% MoM. This is the second consecutive MoM decline in food index in FY22TD. As per Sensitive Price Index (SPI) data published by the Pakistan Bureau of Statistics (PBS), average prices of Potatoes, Tomatoes and Condiments and Spices are expected to register a decline of 13%, 35% and 21% MoM, respectively which will keep the food index contained. On the other hand, prices of essential food items like Fresh Fruits and Onions are expected to increase 8% MoM and 5% MoM, respectively. However, quarterly adjustment in House rent and increase in petroleum products will keep the Housing index and Transport Index up 0.5%MoM and 1.9% MoM, respectively.

Inflation & Interest Rate Outlook

Inflation has witnessed slowdown recently with supply-side pressures from food showing a decline and core-inflation still under control. However, going forward we expect inflation to remain in check on account of adjustments in electricity price (base tariff hike-which is expected in phased manner), any increase in prices of petroleum products owing to higher international oil prices and surge in prices of perishable and nonperishable food items in the month of Ramadan. We expect average inflation for FY22 to remain in double digit, above 10% YoY. On monetary policy front, the SBP kept policy rate unchanged at 9.75% in its recent Jan’22 Monetary Policy Statement (MPS). The Committee no longer targets mildly positive interest rates as it believes the current levels appear appropriate for the economy.

Courtesy – AHL Research

Sharing is caring

Leave a Reply