The government may impose sales tax on petroleum products in coming days which would massively increase prices of consumer products.
Inflation is likely to remain elevated in next few months as government has finally decided to let go administrative hold on interbank PKR/USD parity and also increased petrol and diesel prices by PKR35 per liter, analyst said.
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“In addition, there is high probability of imposition of sales tax on petroleum products in next fortnightly revision. All these measures will have a second round impact and are likely to seep into core inflation,” said the analysts at Insight Securities.
The recent increase in petroleum products is likely to have an impact of about 75 basis points in February 2023 inflation. Furthermore, increase in energy tariffs are also around the corner as per IMF’s condition, which will remain a key upside risk to inflation forecast.
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Headline inflation for January 2023 is expected to clock in at 26.38 per cent YoY vs. 12.96 per cent in SPLY, taking 7MFY23 inflation to 25.2 per cent vs. 10.2 per cent in SPLY.
On YoY basis, the increase in consumer price index (CPI) is driven by 40 per cent rise in food segment and 39 per cent increase in transport index.
On MoM basis, inflation is likely to inch up by 2 per cent, mainly attributable to 3 per cent increase in food index. Core inflation for urban and rural baskets is expected to clock in at 15.0 per cent/17.1 per cent YoY, respectively.
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Within the Sensitive Price Index (SPI) basket, items that recorded an increase in prices during the period under review are as follows, Chickens (↑14.7 per cent), Rice (↑12.9 per cent), Bakery & Confectionary (↑10.6 per cent), Onions (↑9.1 per cent) and Vegetables (↑8.8 per cent).
On the flip side, prices of following items eased off during the month, Potatoes (↓22.0 per cent), Tomatoes (↓20.8 per cent), Electricity charges (↓2.4 per cent) and Sugar (↓2.4 per cent).
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In latest Monetary Policy Committee (MPC) meeting, the central bank has raised the policy rate by 100bps to 17 per cent. SBP highlighted the decision was driven by across the board inflationary pressures which is persistent and sticky.
SBP noted that it is necessary to curtail inflationary concerns because if this remain unaddressed then it will result in longer than expected period of high inflation.
