Karachi, September 25, 2023 (PPI-OT): Sep-2023 CPI expected at 30.6% on lower base
A lower base set in Sep-2022 may bring a blip in Sep-2023 CPI readings, which is projected at 30.6%. The pace would seem higher than CPI trend of ~28% of late, reported since Jun-2023, as MoM increase may remain close to the normal pace of 132bp. To recall, one-time power tariff adjustment of -65% MoM in Sep-2022 had led to a 115bp MoM dip in Sep-2022 headline inflation readings, declining the base for this month.
With the expected trend of disinflation to continue, while we expect FY24F average CPI to clock in at 23%, rising oil prices are a key risk to our estimates, which is likely to have a snowball impact on food and related segments that carry ~40% weight in the basket. Having said that, recent sharp PKR appreciation against US$ is expected to offset some of the POL price hikes announced of late.
Sep-2023 CPI reading to reflect a blip in ongoing trend
A lower base set in Sep-2022 may bring a blip in Sep-2023 CPI readings, projected at 30.6%. To recall, one-time power tariff adjustment of -65% MoM in Sep-2022 led to a 115bp MoM dip in Sep-2022 CPI, declining the base for this month. The pace would seem higher than CPI trend of ~28% of late, reported since Jun-2023, as MoM increase in Sep-2023 may remain close to the normal pace of 132bp.
On a MoM basis, key driving segment to monthly uptick is likely to be ongoing increase in POL prices of ~Rs30/ltr. Food inflation is also expected to increase by 146bp MoM. Moreover, MoM increase of 82bp in core inflation is also expected over continuing inflationary pressures on other segments.
Recent PKR appreciation may offset some oil price shocks
While we expect FY24F average CPI to clock in at 23%, rising oil prices are a key risk to our estimates. Given the historical strong correlation of inflation with oil price trend, albeit with a lag, gives a higher probability of second-round impact of higher oil prices to also kick in to food and related segments that carry ~40% weight in the basket.
Having said that, the 5% PKR depreciation from its recent low in the past 2 weeks is expected to partially offset the rise in POL product prices. For perspective, the last POL price increase incorporated average PKR/US$ of 302. Current interbank rate is up 4% (Rs10) since that level, where the average of the second-half of Sep- 2023 so far comes to 294 (+3%, Rs8). At the last ex-refinery prices, a 3% change quantifies to Rs8//tr.