Karachi, September 26, 2023 (PPI-OT): Sep-23: Low Base and Higher Energy Cost to Push CPI to 31.2%y/y

For Aug-23, we estimate national CPI to clock in at +31.2%y/y growth compared to the previous month's +27.4%y/y. On a monthly scale, Sep-23 is estimated to show a +1.8%m/m growth compared to +1.7%m/m in Aug23.

This month’s inflation is mainly driven by Food and Transport Indices. Furthermore, low base effect from Sep-22 owing to FPA adjustment is also likely to push CPI up on yearly basis.

Going forward, we expect headline inflation to gradually come down from Oct-23, post low base effect in Sep-23. Moreover, CPI is likely to drop further from Feb-24 onwards due to high base effect. We expect inflationary pressure to persist from food and energy side, however, recent PKR appreciation is likely to offset rise in international oil price and offer some respite in the near term

We preview Sep-23 National CPI estimates.

Monthly Inflation to Clock in at +31.2%y/y

For Aug-23, we estimate national CPI to clock in at +31.2%y/y growth compared to the previous month's +27.4%y/y. On a monthly scale, Sep-23 is estimated to show a +1.8%m/m growth compared to +1.7%m/m in Aug-23. This month’s inflation is mainly driven by Food and Transport Indices. Furthermore, low base effect from Sep-22 owing to FPA adjustment is also likely to push CPI up on yearly basis.

Food prices continue to rise

Monthly Sensitive Price Index (SPI), which is a proxy index for volatile food prices, suggests prices are likely to rise overwhelmingly by +1.8%m/m basis. During the month of Sep-23, key food items including onion, sugar, pulses, garlic, rice etc. have increased sharply over the previous month.

Substantial hike in fuel prices to lift transport index

For the month of Sep-23, the transport index is likely to increase by +9%m/m as fuel prices escalated on average up by +13%m/m owing to PKR depreciating effects commingled with a slight increase in international crude prices, while PDL remains unchanged. However, we do not observe any significant change in the prices of transport vehicles.

Outlook

Going forward, we expect headline inflation to gradually come down from Oct-23, post low base effect in Sep-23. Moreover, CPI is likely to drop further from Feb-24 onwards due to high base effect. We expect inflationary pressure to persist from food and energy side, however, recent PKR appreciation is likely to offset rise in international oil price and offer some respite in the near term.