Karachi, August 31, 2021 (PPI-OT): Pakistan Economy: Aug’21 inflation to clock in at 8.35%YoY

Inflation for Aug’21 is likely to clock in at 8.35%YoY compared to 8.40%YoY in Jul’21. On a monthly basis, inflation is likely to stand at +0.58%MoM (Urban/Rural: 0.53%MoM/0.67%MoM) as build up in prices across all segments was partially countered by flattish food inflation (down 0.08%MoM vis-a-vis 1.74%MoM uptick in Jul’21 partly attributable to seasonal factors).

Inflation for FY22 is expected to be recorded at 8.1% where in our base case we have assumed govt. to collect ~58% of the targeted petroleum levy of PkR600bn at an avg. oil price of US$65/bbl, while given limited visibility on IMF mandated utility adjustments (pending adjustments amount to PkR5.65/unit, as per news flows), 5% hike in electricity prices is incorporated in Oct’21 and Nov’21 each.

While inflation has been put on back-burner on deciding on the monetary course, pressure on exchange rate (partially as a result of exogenous developments) might prompt the Central Bank to begin monetary tightening earlier than expected. However, any rate increase would be gradual which is unlikely to significantly alter current set of fundamentals.

We continue to prefer thematic plays including Cements, Steel, Construction-Allied, Textiles, and Techs.