January CPI likely to rise 27pc; 30pc breach in months ahead

KARACHI: Analysts expect Pakistan’s consumer price index (CPI) to breach the 30 percent barrier in months ahead, with January 2023 inflation to hover around 27 percent on account of energy and food prices.

JS Global citing back-to-back impact of macro developments on CPI said, “In any scenario, given the bulk adjustment in currency, a 30 percent YoY CPI reading now seems inevitable. This is broadly led by direct impact on around 20 percent of the CPI basket accumulated by fuel, edible oil and items for which Pakistan is a net importer.”

Rupee devaluation, coupled with Rs35/litre hike in prices of petroleum products has raised concerns about the overall impact on CPI.

Inflation was recorded at 24.5 percent on a year-on-year basis in December 2022, as compared to 12.3 percent in December 2021.

Fahad Rauf, head of research at Ismail Iqbal Securities, in his report said, “Inflationary pressures have increased in January 2023, where supply shortage has emerged as the prime reason.”

Pointing out the reasons, the report said that wheat and wheat flour prices shot up because flour mills were unable to procure wheat from the provincial governments. Chicken prices soared as key feed source (soybean) was stuck at port due to government restrictions. Rice prices also surged as a result of floods and better export prices.

“We estimate CPI index to increase by 2.4 percent MoM, led by higher food inflation, and quarterly house rent revision. On YoY basis, inflation is estimated at 27 percent vs 24.5 percent in December 2022,” he said. “We expect core inflation to persist at current levels, given supply chain issues, increasing by 1.2 percent MoM vs 1.3 percent in December 2022.”

However, Rauf said that the YoY reading would witness minimal increase to 16.6 percent vs 16.4 percent in December, due to high base effect. “The current real rates on core inflation are marginally positive.” Going forward, the inflationary pressures would likely increase, given sharp rupee devaluation, and expected petroleum, electricity, and gas price adjustments. The trajectory would depend upon the size and method of adjustments (staggered or one-shot), he added.

Tahir Abbas, Head of Research at Arif Habib Limited, said the impact of the current and upcoming measures to win IMF approval for the 9th review would be more than 30 percent in inflationary terms:

“We expect that the inflation rate of February 2023 will be around 33 percent due to the fuel rate increment and currency depreciation.”