Karachi, July 02, 2021 (PPI-OT): CPI closes FY21 at an average of 8.9%

Headline inflation rose by 9.7% YoY during Jun-2021 (May-2021: 10.9%), where core inflation increased by a relatively softer 6.7% YoY in Urban CPI (May-2021: 6.8%) and 7.3% YoY in Rural CPI (May-2021: 7.6%).

To note, the Transport head (5.9% weight) reported an increase of 17.4% YoY, resulting in a snowball impact on other head items as well.

The WPI Inflation continued to escalate this month as well, reporting an alarming growth of 20.9% YoY. With this, the average for FY21 comes to 9.4%. The gap between WPI and CPI has now increased to a high of 12ppt, indicating cost-push inflation in the coming months.

On MoM basis, CPI declined by 0.24% in Jun-2021, which was mainly on account of dip in food inflation (-1.77% MoM) during the month. To be more specific, the decline was broadly driven by Chicken and Fruits prices.

Rising oil prices and the monumental Petroleum Development Levy target for FY22 could push up domestic fuel prices and eventually reflect in the CPI in FY22. Moreover, printing of currency could further exacerbate the situation. With the SBP keeping the medium-term inflation targets intact, one cannot rule out the possibility of a monetary policy hike in the coming months.