Karachi, September 29, 2022 (PPI-OT): Pakistan Economy: Inflation estimated at 26.4% in Sept’22

Inflation for the month of Sept’22 is estimated to clock in at 26.4% which will take the average inflation during 1QFY23 to 26.2% as opposed to an average inflation of 8.6% during SPLY. This will be the fourth successive month where the headline inflation has topped 20% and is unlikely to fall below this mark over the next quarter owing to floods.

The headline inflation comes on the back of monthly inflation of 1.4%MoM, which takes the monthly average inflation during 1HFY23 to 2.73%. The jump in monthly inflation is largely driven by the jump in prices of food items, such as tomatoes and eggs, on the back of flood related supply disruptions.

The short term outlook of the inflation remains bleak as the food inflation will likely remain elevated owing to floods and rapid PkR depreciation. To this end, PkR has already depreciated by 11.7% over the last three months which will have a ripple effect on the entire economy.

On this month’s forecasted inflation, the real interest rates stand about -11.4% which makes a case for interest rate hikes in the coming months. However, with country currently grappling with the challenges posted by floods, the rate hikes may not materialize. Hence resulting in currency weakening even further.

With inflation likely to remain elevated over the foreseeable future, the equity market performance may remain jittery. Expectations of foreign inflows in the coming months has stemmed the decline in the currency which may give a short term respite to the market. However, the feel good factor is unlikely to last long.