Inflation to settle at 8.96% YoY compared to 3.68% in Apr’18 and 9.41% in Mar’19, respectively. In particular, increase in CPI can be attributed to Uptick in prices of food related products, especially perishable items (Fresh Fruits and Vegetables) and Chicken.
Increase in price of MoGas by PKR 6.00/liter (increasing CPI by 16bps), Drastic surge in prices of clothing material (Cotton Cloth and Lawn), and Quarterly review of house rent index which is expected to increase by 2.00% QoQ (this will add 42bps in overall CPI) compared to last four quarterly review average increases of 1.99%.
This will take 10MFY19 average inflation to 7.00%, compared to 3.77% in SPLY. On a yearly basis, increase in inflation is likely to be led by Transport (+16.8% YoY), Alcoholic Beverages & Tobacco (+12.1% YoY), Housing (+10.6% YoY), House Hold Equipment (+8.3% YoY), and Food (+7.8% YoY).
Monthly Inflation to grow by 1.42%
On a monthly basis, CPI reading is expected to increase by 1.42% MoM attributable to significant surge in prices of heavy weighted sectors, particularly the Transport Index (+3.60% MoM), Clothing and Footwear Index (2.53% MoM), Housing Index (+1.38% MoM), and Food Index (1.26% MoM). As per four weeks Sensitive Price Index (SPI) data published by the Pakistan Bureau of Statistics (PBS), average prices of Onions, Fresh Fruits, Chicken, Fresh Vegetable and Sugar are expected to register a surge of 29%, 10%, 8%, 7%, and 7% MoM, respectively.
Inflation to continue its upward trajectory in upcoming months amid low base effect of last year. Ramadan factor may increase prices of perishable goods (fresh vegetables and fresh fruits), while lagged impact of adverse exchange rate movements and gradual increase in international oil prices may lead to higher prices of local petroleum products (MoGas and HSD). This may keep inflation in the range of 8.8%-9.3% for the remaining months of FY19, we view. However, increase in tariff of utilities (Gas and Electricity) is an upwards risk to our estimates.