KARACHI: Headline inflation based on Consumer Price Index (CPI) likely to make new highs and is expected to clock in at 30.5 per cent year on year (YoY) in February 2023
as against 12.2 per cent in February 2022 and 27.5 per cent in preceding month.
The increase in inflation is led by 45 per cent and 54 per cent increase in food and transport index, respectively, said analysts at Insight Securities.
READ MORE: Mini budget applies as President Alvi signs Finance Supplementary Bill 2023
This will take eight months (July – February) 2022-2023 inflation to 26 per cent as compared with 10.5 per cent in same period last year.
On Month on Month (MoM) basis, inflation is expected to increase by 3.5 per cent as compared with 2.9 per cent in preceding month.
READ MORE: Experts question sales tax rate increase without Parliament approval
Within the Sensitive Price Indicator (SPI) basket, items that recorded an increase in prices during the period under review are as follows, LPG (29.3 per cent), motor fuel (25.7 per cent), fresh fruits (24.8 per cent), fresh vegetables (21.2 per cent) and chicken (18.0 per cent).
On the flip side, prices of following items eased off during the month, onions (17.6 per cent), tomatoes (15.4 per cent), eggs (3.4 per cent) and wheat flour (1.0 per cent).
Rampant inflation continues to squeeze pockets of common people led by unprecedented rise in food index, up by 43 per cent in last 12 months, mainly driven by supply side and administrative issues coupled with abrupt movement of domestic currency.
READ MORE: Salient features of mini budget or Finance Supplementary Bill 2023
The analysts expect average inflation for the current fiscal year 2022-2023 to clock in at 26.9 per cent as compared wiht 12.1 per cent in the preceding fiscal year.
Real yields are already at deep negative territory and forecasted inflation of 30.5 per cent for February 2023 will take it to negative 13.5 per cent.
Furthermore, in recent treasury bills auction yield on 3M/6M/12M witnessed an increase of 195/206/184 basis points, respectively.
Similarly, secondary market yields have also recorded an upward movement since last monetary policy committee meeting.
All these developments points towards a 200-300 basis points increase in benchmark rate in next MPC meeting, the analysts added.
READ MORE: Finance ministry announces salary increase, promotions of government employees
Recent increase in motor fuel and gas tariff along with imposition of 1 per cent additional sale tax is likely to keep core inflation upbeat in near term.
As per news flows, increase in policy rate by 200-300 basis points is IMF’s key demand for long pending Staff Level Agreement (SLA) for the ninth review of EFF program. There are chatters of emergency MPC meeting as secondary market yields have already incorporated 200bps hike in benchmark rate, however, SBP has denied any earlier than scheduled MPC meeting.
