Inflation likely to jump over 30 per cent in February

KARACHI: The headline inflation based on the Consumer Price Index (CPI) for February 2023 is likely to settle at 30.5 per cent on a year-on-year (YoY) basis, compared with 27.6 per cent in January 2023 and 12.24 per cent in February 2022, respectively, analysts said on Monday.

The analysts at the Arif Habib Limited said with this, the average inflation for the eight months of the fiscal year 2022/23 clock-in at 26.04 per cent, compared with 10.49 per cent in the corresponding months of the last fiscal year.

The YoY uptick in the CPI will be food (44.9 per cent YoY), transport (57 per cent YoY), housing (11.7 per cent YoY), restaurants and hotels (31.3 per cent YoY), household equipment (30 per cent YoY), recreation and Culture (1.4 per cent YoY), clothing and footwear (16 per cent YoY) and miscellaneous (29.1 per cent YoY).

On a MoM basis, the CPI reading is expected to increase 3.52 per cent. This month, we expect the MoM inflation to remain under pressure mainly on the back of a surge in the food index, transportation and housing index. The food index is expected to post an increase of 3.9 per cent MoM in January 2023.

As per the Sensitive Price Indicator (SPI) data published by the Pakistan Bureau of Statistics (PBS), an increase in the average prices of rice, chicken, ghee, fruits, vegetables and pulses will keep the inflation in-check.

Moreover, a jump in the liquefied natural gas (LNG) prices and gas charges are likely to increase the housing index by 2 per cent MoM.
In addition, the transportation index too is expected to register a jump of 16.9 per cent MoM on the back of higher domestic petroleum product prices.

The analysts expect the headline inflation to remain elevated in the remaining months of the current fiscal year before slowing down with the onset of the new fiscal year.

They also expect pressure mainly emanating from any further tariff hikes, imposition of recent additional taxes, weaker currency against the greenback and a surge in the food prices.

On the monetary policy front, the State Bank of Pakistan (SBP) increased the benchmark policy rate by 100bps to 17 per cent in January 2023 policy.

In its statement, the SBP mentioned that high levels of CPI have been noted and could pick up higher if remained unchecked.

Hence, the committee felt strongly that the inflation must be anchored, as the long-term costs of letting it become entrenched outweighs the immediate costs of bringing it down, so as to embark on a path of price stability and sustainable growth.

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