Karachi, August 31, 2023 – The substantial increase in the prices of petroleum products and food items is poised to fuel inflation for August 2023.
Analysts at Topline Securities anticipate that the benchmark headline inflation, based on the Consumer Price Index (CPI), will likely reach around 28.56 percent in August 2023. This figure compares to 28.29 percent in the preceding month and 27.26 percent during the same period last year (SPLY).
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Despite earlier expectations of a slowdown in inflation during the second half of the year, analysts note that inflation continues to surge. The primary driver of this increase is a significant year-on-year (YoY) rise of 44 percent in the food index.
On a month-on-month (MoM) basis, inflation is expected to rise by 2.7 percent. This can be attributed to a 4.7 percent increase in the food basket and a 0.17 percent rise in the transport index. Consequently, the average inflation for the second half of 2023 (2HCY23) is projected to reach 28.4 percent, compared to 26.1 percent in SPLY.
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Within the Sensitive Price Indicator (SPI) basket, notable price increases during the review period were observed in items such as tomatoes (66.4 percent increase), condiments and spices (55.5 percent increase), electricity charges (20.9 percent increase), fresh vegetables (19.9 percent increase), and eggs (18.0 percent increase). Conversely, prices for certain items decreased during the month, including fresh fruits (9.9 percent decrease), cooking oil (3.6 percent decrease), chicken (3.5 percent decrease), vegetable ghee (2.9 percent decrease), and mustard oil (2.0 percent decrease).
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Analysts expect headline inflation to peak in September 2023 at around 33 percent, primarily due to rising food and petroleum product prices. This surge is attributed to the increasing costs of food and petroleum products. In the coming months, inflation is expected to remain at elevated levels, largely influenced by adjustments in electricity and gas rates. Estimates suggest that petroleum product prices may increase by PKR 10-20 per liter in the next fortnightly revision.
Furthermore, the significant appreciation of the PKR/USD exchange rate in recent days, coupled with wage pressures, is expected to maintain high inflation projections. Based on their calculations, the Consumer Price Index (CPI) is likely to average around 25 percent in FY24, in contrast to the central bank’s estimate of 20 percent-22 percent.
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The Monetary Policy Committee is scheduled to convene on September 14th, and there is widespread anticipation of a substantial increase in the benchmark interest rate, potentially ranging from 200 to 300 basis points. This expectation arises from persistent inflation projections, the rapid depreciation of the domestic currency, and the newly appointed finance team taking charge.
