For the month of Sep’21, headline inflation as measured by CPI clocked-in at 8.98% YoY compared to 9.04% and 8.35% YoY in Sep’20 and Aug’21, respectively. With this, the average inflation for 1QFY22 arrives at 8.58% YoY vis-à-vis 8.84% YoY in SPLY. The YoY uptick in CPI was led by Food (10.2% YoY), Transport (9.1% YoY), Housing (9.7% YoY), Clothing & Footwear (9.2% YoY), Miscellaneous (7.4% YoY), Restaurants (7.8% YoY), House Hold Equipment (9.3% YoY), Health (8.0% YoY) and Alcoholic Beverages & Tobacco (2.0% YoY).
Monthly inflation accelerated due to increase in food, housing and transport index
On a MoM basis, CPI reading increased 2.1% mainly attributable to higher Food index (4.0% MoM), Housing index (1.6% MoM) and Transport index (1.3% MoM). Perishable food index recorded a 3.35% MoM increase with items such as poultry, wheat and fresh vegetables contributing the most to the monthly food inflation. Moreover, the non- perishable food index too posted a jump during the month, up 4.13% MoM. In addition, an increase in petroleum products’ prices on account of higher international oil prices pushed up the Transport Index by 1.34% MoM. Housing index too was up 1.62% MoM due to significant jump in electricity charges.
Core inflation inched up; Urban +0.4% MoM | Rural +0.5% MoM in Sep’21
The core inflation inched up again on MoM basis during Sep’21, from last month’s 0.2% MoM increase in both, Urban and Rural. The urban core inflation measured by non-food, non-energy (NFNE) during Sep’21, increased by 6.4% YoY as compared to an increase of 6.3% in the previous month and 5.5% in Sep’20. Rural, on the other hand, increased by 6.2% YoY in Sep’21 as compared to an increase of 6.2% in the previous month and 7.8% in Sep’20.
CPI and Monetary Policy Outlook
With Sep’21 headline inflation clocking-in at 8.98%, FY22’s inflation reading is expected to remain closer to higher end of SBP’s target range of 7-9% range. Any abrupt change in tariffs, exchange rate parity and oil prices going forward, pose an upside risk to our inflation estimates. On the monetary policy front, in its Sept’21 policy, the State Bank of Pakistan (SBP) finally resumed monetary tightening by hiking the benchmark policy rate by 25bps to 7.25%. The MPC, as previously, reiterated that the policy response should transition from prioritizing growth to now ensuring sustainability.
Courtesy – AHL Research