Karachi, February 28, 2023 (PPI-OT): Feb’23 CPI Expect the previously unimaginable

The Consumer Price Index (CPI) is expected to show a 30.0%YoY increase during the month of Feb’23, compared to 27.6% posted in the earlier month.

The elevated Feb’23 inflation expectations can be broadly attributed to; i) partial impact of heightened petroleum prices, ii) effects of market-determined exchange rate (implemented in the last week of Jan’23), and iii) increase in food prices.
Food and Non-Alcoholic Beverages Index is expected to show an increase of 2.5%MoM in Feb’23, being driven by increases in Chicken, Rice and Cooking oil prices. Some respite this month comes in the form of wheat prices, with the SPI data indicating a 2.9%MoM drop in prices of 20kg wheat flour bag.

The Transport Index, which has a 5.9% weight in the national headline inflation, is expected to show an increase of 46.6%YoY, driven by 16.2/15.3% increase in petrol and diesel prices, enacted at the end of Jan’23. However, it is worth noting that the price hikes announced on February 16, 2023 would not be reflected in this month’s reading.

Even higher inflation readings can be expected going forward as the secondary effects of gas tariff hikes and GST implementation start to materialize in prices. We expect the MPC to continue with its hawkish stance when it meets next and increase policy rate by at least 200bps.