Inflation reviews for May 21 in Pakistan

For the month of May’21, headline inflation as measured by CPI clocked-in at 10.87% YoY, taking the 11MFY21 average inflation to 8.83% YoY compared to 8.22% in May’20 and 11.10% in Apr’21, respectively. The YoY uptick in CPI was led by Food (14.8% YoY), Transport (13.96% YoY), Clothing & Footwear (10.6% YoY), Miscellaneous (10.7% YoY), Housing (8.4% YoY), Restaurants (8.6% YoY), House Hold Equipment (9.6% YoY), and Alcoholic Beverages & Tobacco (4.97% YoY).

Exhibit: Consumer Pricing Index May’21

  

Weight

May-21

May-20

YoY

Apr-21

MoM

CPI

  

        145.2

        131.0

10.9%

        145.1

0.1%

Food

34.6%

        151.7

        132.1

14.8%

        150.7

0.7%

Housing

23.6%

        139.5

        128.6

8.4%

        141.2

-1.2%

Clothing & Footwear

8.6%

        148.9

        134.6

10.6%

        148.5

0.3%

Restaurants & Hotels

6.9%

        142.4

        131.1

8.6%

        141.6

0.6%

Transport

5.9%

        141.6

        124.3

14.0%

        141.5

0.1%

Miscellaneous

4.9%

        151.9

        137.2

10.7%

        150.8

0.7%

House Hold Equipment

4.1%

        141.1

        128.7

9.6%

        140.4

0.5%

Education

3.8%

        144.6

        142.4

1.6%

        144.6

0.0%

Health

2.8%

        153.0

        140.4

9.0%

        152.6

0.3%

Communication

2.2%

        108.6

        107.0

1.5%

        108.6

0.0%

Recreation & Culture

1.6%

        125.7

        119.9

4.9%

        125.2

0.4%

Alcoholic Beverages, Tobacco

1.0%

        144.5

        137.7

5.0%

        144.3

0.2%

Source: PBS, AHL Research

On a MoM basis an increase of 0.1% unveiled

Food inflation registered a 0.7% surge MoM in the month of May’21. Perishable food index recorded an 8.51% MoM decrease with items such as Tomatoes, Onions, Fresh Vegetables, Eggs and Pulses contributing the most to the monthly food inflation decline. However, the non- perishable food index posted a 2.15% MoM increase during the month. Moreover, another index that receded on the monthly basis was Housing, Water, Electricity, Gas & Fuel index- down by 1.21% MoM on the back of 5.61% MoM lower electricity charges.

Core inflation MoM: Urban +0.2% | Rural +0.3%, in May’21

The trend in core inflation showed moderation on a YoY and MoM basis from the previous month. The urban core inflation measured by non-food, non-energy (NFNE), during May’21, increased by 6.8% YoY as compared to an increase of 7.0% in the previous month and 6.3% in May’20. Rural, on the other hand, increased by 7.6% YoY in May as compared to an increase of 7.7% in the previous month and 8.4% in May’20. On the monthly basis, Urban and Rural NFNE increased by 0.2% and 0.3%, respectively.

CPI and Monetary Policy Outlook

Headline inflation FYTD now averages at 8.83% YoY versus 10.97% YoY in the corresponding period last year. Double digit CPI is expected to continue in the next month too due to low base effect. Going forward, further rise in the international oil prices and continuing food inflation are the two key concerns to our overall inflation expectation. For now, we expect FY21 inflation estimates to hover slightly above the upper limit of SBP’s expected 7-9% range, around 9.2% YoY. On the monetary policy front, the State Bank of Pakistan (SBP) decided to keep the benchmark policy rate unchanged at 7% in its latest May’s Monetary Policy meeting.  The committee noted that since its last meeting in Mar’21, further improvement has been witnessed in the overall domestic recovery, with GDP forecast at 3.94% for FY21. This is expected to persist and translate into a higher growth next year.

Courtesy – AHL Research

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