CPI rises to 9.1% in March on higher food inflation in Pakistan

National CPI increased to 9.1% yoy in 2021 vs. 8.7% yoy in February (up 0.4% mom). Urban CPI of 8.8% yoy was similar to the reading in previous month (8.6%), while Rural CPI rose 0.5% mom to 9.5% vs. 8.8% in February. The sequential increase in CPI is attributed majorly to higher Food inflation (c.11%), which was partly offset by a mom decline in Utilities index.

Core inflation in March, however, improved sequentially. Urban core inflation is 6.3% vs. 6.4% in February. Rural core inflation also fell, to 7.3% vs 7.7% in the previous month. During 9MFY21, Urban and Rural core inflation have averaged 5.7% and 7.6%, respectively.

Urban/Rural Food inflation have risen to 11.5%/11.1% in March, compared with 10.3%/9.1% in the previous month. Compared with last year, prices of almost all food items, except for perishable food items (high base) have risen substantially – most notably that of wheat and sugar. This has been due to a combination of higher international commodity prices and administrative failures in containing shortages in some key food items (for instance, Chicken in March).

Electricity index has declined 8% mom (albeit, up c.32% yoy), because of which Housing & Utilities index rose relatively moderately by 6-8% yoy. Also, because of minimal change in Petrol prices during the month, the Transport index rose only 3% yoy. These helped to dilute the impact of high Food inflation.

Outlook:

National CPI is likely to nudge 10-11% during April-June 2021, where food prices will remain high amid Ramadan season (starting mid-April), and there could be another power tariff hike in May.

National CPI during 9MFY21 is thus averaging 8.4% – closer to the top-end of SBP’s projected range of 7-9% for FY21 (Urban CPI averaged 7.4% and Rural CPI, 9.9% in 9M). In the March MPS, the SBP adopted status quo because of its outlook for fiscal consolidation in the coming months (Budget), and an accommodative monetary policy is considered appropriate to support overall economic growth.

Courtesy – Intermarket Securities Limited.

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