Pakistan headline inflation may soar to historic high in March 2023, which is likely to force the central bank for further interest rate hike.
Inflation is a key concern for the central bank in Pakistan, as it can have significant impacts on the economy and the welfare of the people. If the headline inflation in Pakistan does soar to a historic high in March 2023, this is likely to put pressure on the central bank to take action to control inflation.
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One of the main tools that the central bank can use to control inflation is to increase interest rates. By raising interest rates, the central bank can make borrowing more expensive, which can reduce consumer spending and slow down inflation.
However, increasing interest rates can also have negative impacts on the economy, such as slowing down investment and reducing economic growth. Therefore, the central bank must balance its efforts to control inflation with the need to maintain economic growth and stability.
Overall, if the headline inflation in Pakistan does soar to a historic high in March 2023, this is likely to put pressure on the central bank to take action to control inflation, such as increasing interest rates. The central bank will need to carefully consider the potential impacts of its actions on the economy and take measures to balance the need for inflation control with the need for economic growth and stability.
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Analysts at Arif Habib Limited estimated that headline inflation based on Consumer Price Index (CPI) to reach historic high levels during March 2023, settling at 34.3 per cent YoY compared to 31.5 per cent in February 2023 and 12.71 per cent in March 2022, respectively.
With this, average inflation for nine months fiscal year 2022-2023 is likely to clock-in at 27.1 per cent compared to 10.7 per cent in the same period of the last fiscal year.
The YoY uptick in CPI will likely be led by Food (47.7 per cent YoY), Transport (55.2 per cent YoY), Housing (17.5 per cent YoY), Restaurants & Hotels (37.3 per cent YoY), Household Equipment (35.4 per cent YoY), Recreation & Culture (48.4 per cent YoY), Clothing & Footwear (19.4 per cent YoY) and Miscellaneous (35.4 per cent YoY). The core inflation too is expected to remain above 20 per cent in the out-going month.
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On a MoM basis, CPI is expected to show an uptick of 2.9 per cent mainly due to: i) Higher food inflation on account of higher prices of almost all perishable items (with the Ramadan factor kicking-in), as per SPI data ii) increase in fuel and energy prices and iii) jump in prices of clothing. On the other hand, education index is expected to decline 0.6 per cent MoM.
With pressure mainly emanating from any further energy tariff hikes, weaker currency against the greenback and surge in food prices, the analysts expect headline inflation to remain elevated in the upcoming months.
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“With this, we expect SBP to hike the policy rate by 100bps, in the upcoming monetary policy scheduled for April 04, 2023, taking the policy rate to 21 per cent.
In the last monetary policy announcement on March 02, 2023, the central bank increased the policy rate aggressively by 300 basis points to 20 per cent.
