November CPI inflation may reach double-digit

KARACHI: The inflation based on the Consumer Price Index (CPI) for November 2021 is expected to register a double-digit growth to 10.43 per cent, compared with 9.19 per cent and 8.35 per cent in October and November 2021, respectively.

This will take average inflation during July-November 2021/22 to 9.07 per cent, compared with 8.76 per cent during the corresponding period of the last year, analysts at Topline Securities said.

The monthly inflation is estimated at 1.97 per cent for November 2021, compared with an average monthly inflation of 1.47 per cent in the four months of FY22. Key factors for the month-on-month increase in CPI reading are expected to be transport, food and household equipment that are likely to post a jump of 6.8 per cent, 2.4 per cent and 3 per cent, respectively.

Read more: State Bank raises key policy rate by 150 basis points to 8.75%

“During November 2021, we expect [the] transport index to go up due to higher international oil prices, leading to 8 per cent MoM jump in motor fuels. Moreover, in food index, we expect tomatoes (+77.2 per cent MoM), potatoes (+8.2 per cent MoM) and mustard oil (+7.8 per cent MoM) to contribute the most to the index, while major laggards that would lower the impact are expected to be onion (-7.6 per cent MoM) and pulse masoor (-2 per cent MoM).

In addition, the household equipment index is expected to witness an uptick due to higher prices of washing soaps (+7 per cent MoM).

“With an average CPI inflation for the first four months of FY22 coming in at 8.93 per cent, we estimate full-year FY22 CPI-based inflation to remain in double-digit, above 10 per cent YoY.”

The thesis is premised on higher petroleum products prices, increase in electricity tariff and continuous decline in the exchange rate parity.

Read more: Food inflation likely at 8.27% in September

Moreover, with the measures taken by the government to monitor and curtail the prices of essential commodities, the prices of two basic food commodities, wheat flour and sugar, are expected to further decline in the days to come. With this, “we might see food inflation receding in the coming months”.

On the monetary policy front, the State Bank of Pakistan (SBP), in its November 2021 policy, continued monetary tightening by increasing the policy rate by 150bps to 8.75 per cent.

The key reason behind this decision included inflation, which continued to soar, in particular, the demand side inflation overshot; sharp surge in the international commodities due to the post-Covid demand and supply disequilibrium and; vulnerabilities to the economy in lieu of the Covid-19 appear meagre given the progress on the vaccination drive; hence, allowing the State Bank to taper the previously provided monetary stimulus.