According to research house reports of WE Financial Services Limited, the Oct’19 NCPI clocked in at 11.04%YoY/1.82%MoM as compared to 11.37%/0.77% MoM last month and 6.5% SPLY, higher than market consensus of 10.36%YoY.
The rise in monthly inflation primarily can be attributed to higher than expected food inflation (+2.
26%MoM/15.03%YoY) and housing inflation (+3.65% MoM/7.18%MoM). Moreover, 4MFY20 average inflation arrived at 10.33%YoY as opposed to 6.2%YoY SPLY. In Oct’19 UCPI recorded at 10.86%YoY/1.59%MoM while RCPI clocked in at 11.33%YoY/2.17%MoM.
Major food commodities witnessed increase during the month includes, tomatoes (+35%MoM), fresh vegetables (+18%MoM), potatoes (+10%MoM), onions (+5MoM), Milk Powder (+2%), wheat (+1.22%MoM) and meat (+1.17% MoM). While on the other side, chicken (-18%MoM), fresh fruits (-1.39%MoM) and sugar (-1.37%MoM) witnessed decline in their respective prices.
Moreover, hike in electricity charges (+18%MoM), liquefied hydrocarbons (17% MoM), water supply (+7.34%MoM), and transport services (+1.42%) fueled the inflation during month.
SBP Likely to Maintain Status Quo in Upcoming Monetary Policy Currently real interest rate is hovering around 2.21% which is in the line with historical average of 2.5%. We anticipate headline inflation to remain elevated till dec’19 due to expected hike in electricity and gas tariff coupled with higher
food inflation. Therefore, we don’t foresee any early cut in policy rate in upcoming monetary policy in Nov’19. We believe monetary easing would be less aggressive than tightening, hence we expect gradual cumulative rate cuts up to 100-150bps in 2HFY20.