KARACHI: Pakistan’s headline inflation may settle at 24 per cent for the month of July 2022 as compared to 8.41 per cent in July 2021 and 21.3 per cent in June 2022.
Analysts at Arif Habib Limited said that Consumer Price Index (CPI) for the month of July 2022 would mark the beginning of fiscal year 2022/2023 figures compared to 8.9 per cent in the previous fiscal year.
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The Year on Year (YoY) uptick in CPI will likely be led by Transport (67.5 per cent YoY), Food (27.6 per cent YoY), Housing (18.3 per cent YoY), Restaurants & Hotels (26.6 per cent YoY), Household Equipment (20.3 per cent YoY), Recreation & Culture (14.9 per cent YoY), Clothing & Footwear (16.1 per cent YoY) and Miscellaneous (15.4 per cent YoY).
On a Month on Month (MoM) basis, CPI reading is expected to increase 3.52 per cent. The analysts expected that MoM inflation to remain under pressure for the month of July 2022 mainly on the back of surge in prices of Transport, Housing related and Food items. The Transportation index is likely to keep MoM inflation up by 7.4 per cent MoM.
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This huge surge is on account of increase in petroleum product prices. Moreover, Food index is expected to post a 3.1 per cent MoM in July 2022. As per Sensitive Price Index (SPI) data published by the Pakistan Bureau of Statistics (PBS), increase in average prices of Potatoes, Pulses, Onions and Cooking oil will keep the inflation in-check. Moreover, on the back of quarterly house rent adjustment, higher electricity charges and increase in construction cost, housing index too is likely to remain up MoM by 5.7 per cent.
Given the recent developments on the fiscal front including rollback of subsidy on petroleum products along with increase in prices and hike in electricity prices, headline inflation is expected to remain elevated in the following months.
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It is likely to remain in the double digit in August 2022 as well, averaging over 18 per cent in the current fiscal year along with increase in core inflation. Moreover, in the monetary policy meeting held on July 7, 2022, the State Bank of Pakistan (SBP) increased the benchmark policy rate by 125 basis points to 15 per cent (highest since March 1999).
Moreover, rates on EFS and LTFF loans were linked to the policy rate, in-line with our expectations, at a 500 basis points discount though (to 10 per cent), so as to continue incentivizing exports while ensuring monetary tightening penetrates effectively.
