KARACHI: The continuous rise in petroleum prices in Pakistan have pushed headline inflation up 13-year high at 21 per cent in June 2022.
Consumer Price Index (CPI) Inflation for June 2022 crossed 21 per cent YoY (+6 per cent MoM) beating market expectations of 18 per cent to 20 per cent, analysts at Topline Securities Research said on Friday.
This was due to higher than expected inflation recorded by Transport and Food Segments of CPI which clocked in at 62 per cent YoY and 26 per cent YoY, respectively.
This was led by 40 per cent increase in petrol prices that impacted CPI and also resulted in higher food prices due to increase in transportation cost.
This takes CPI Inflation in fiscal year 2021/2022 to 12.1 per cent which is the highest after FY11 when inflation clocked in at 13.7 per cent.
This sharp surge in inflation specially in the transport segment was driven by successive increase in fuel prices by the government. As per the numbers published by PBS, motor fuel segment was up by 40 per cent MoM whereas transportation services recorded an increase of 14 per cent MoM.
Food inflation also continued to rise as it increased by 5 per cent MoM (vs. increase of 1 per cent in May 2022) in June 2022. Major food items that recorded an increase during the month included Wheat (+4 per cent MoM), Meat (+4 per cent MoM), Milk Fresh (+8 per cent MoM), and Fresh Fruits (+8 per cent MoM).
Transport and Food segments cumulatively have a weight of 40 per cent in the total CPI basket of Pakistan.
Housing, Water & Electricity, the other key segment of CPI with a weight of 24 per cent in CPI also rose by 13.5 per cent YoY and 8 per cent MoM. This was primarily due to up tick in Electricity Charges (weight of 4.6 per cent), up 52 per cent MoM. This is likely due to reversal in subsidy and fuel adjustments surcharges.
These are unprecedented times where sharp rise in commodity prices & supply bottlenecks is exerting pressure on inflation numbers specially for countries that are net importers of oil. We expect inflation to remain elevated during the next 4-6 months with average inflation for FY23 likely to remain in range of 17-19 per cent.
Topline Research also conducted a poll from financial market participants to gauge their view on the upcoming Monetary Policy announcement scheduled on July 7, 2022.
As per the survey, 80 per cent of the participants expects an increase in policy rate in upcoming monetary policy. Around 45 per cent of the participants expects policy rate to increase by 100bps, 30 per cent anticipate an increase of 150bps, while 5 per cent expects increase of more than 150bps.
For FY23, 49 per cent of the participants expects an increase of more than 100bps whereas 26 per cent of participants anticipate an increase of 100bps. The remainder of the participants expect a no change or decline in rates in remainder of FY23.
In terms of inflation outlook, 52 per cent of the participants expect an inflation of over 17 per cent. 11 per cent of the participants expect it to be in between 16 per cent-17 per cent while the remainder anticipate it to be below 17 per cent.
The results are also in line with our estimates as we also expect further hike in policy rates going ahead as SBP is likely to increase rates owing to inflation and external account concerns.
To note, SBP has already raised the policy rates thus far by 400 basis points in 2022 to date.