Pakistan inflation likely to surge by 34.5% in March 2023

Pakistan inflation likely to surge by 34.5% in March 2023

Pakistan inflation likely to surge by 34.5 per cent in March 2023 as against 12.7 per cent same month last year.

The inflation may also increase when compared with 31.5 per cent in February 2023.

Analysts at Insight Securities attributed the increase in inflation to 45 per cent/20 per cent increase in food/housing index.

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This will take nine months of fiscal year 2022-2023 inflation to 27.1 per cent vs. 10.7 per cent in same period last year.

On MoM basis, inflation is expected to increase by 3.0 per cent vs. 4.3 per cent in preceding month. The analysts expect average inflation for FY23 to clock in at 28.2 per cent vs. 12.1 per cent in FY22.

Within the SPI basket, items that recorded an increase in prices during the period under review are as follows, Gas Charges (108.3↑ per cent), Cigarettes (77.2↑ per cent), Tomatoes (↑26.3 per cent), Fresh Fruits (↑25.4 per cent) and Potatoes (↑16.5 per cent). On the flip side, prices of following items eased off during the month, Onions (↓31.3 per cent), Fresh Vegetables (↓14.3 per cent), Eggs (↓13.9 per cent), Chicken (↓9.5 per cent) and Pulse Gram (↓1.9 per cent).

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Food inflation continues to drive headline inflation, which is expected to rise by 45.4 per cent YoY. Secondly, due to recent increase in duty on cigarettes, alcoholic beverages & tobacco index is expected to jump by 148.8 per cent YoY.

Food inflation is likely to remain elevated in coming months due to Ramadan season and administrative issues. Similarly, core inflation is expected to remain upbeat amid enhancement in GST rate and second round impact of hike in energy tariffs.

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As per our estimates, headline inflation is expected to peak in April 2023 and is likely to clock below 20 per cent in January 2024.

Central Bank’s monetary policy committee (MPC) is scheduled to announce benchmark rate on 4th April, where majority expects 100-200 basis points hike in policy rate. Real yields are already in deep negative territory and forecasted inflation of 34.5 per cent for March 2023 will take it to negative 14.5 per cent.

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Secondary market yields have already adjusted 150bps above the benchmark rate. Given the inflation outlook for next few months, they expect SBP to increase policy rate by 100bps in upcoming meeting.