Karachi, April 28, 2023 (PPI-OT): Apr-23: Higher food prices to fuel another record CPI

We preview Apr-2023 CPI, where we expect the data point to clock in at a record-high of 36.9%, as current workings suggest another higher sequential increase of 2.8% MoM. The jump is a result of higher increase in food prices once again, where we expect food inflation to clock in at 48.5% YoY this month - driven by wheat prices and Ramadan effect.

To recall, the quantum of food price increases in the past 4 months has been equal to what is usually witnessed in a span of 1.5 to 2 years.

Moreover, the increase in the last 12 months has been more than food price changes historically witnessed in a span of 3 years.

Apr-2023 CPI expected at 36.9%

We preview Apr-2023 CPI, where we expect the data point to clock in at a record-high of 36.9%, as current workings suggest another sequential increase of 2.8% MoM, versus a usual 0.9% MoM increase witnessed in ordinary times. This would take 10MFY23E headline CPI to 28.16%.

The higher jump is a result of higher increase in food prices, which is ~30% of the CPI basket. On the core front, we expect NFNE inflation to clock in at 27%, another record-high reading, with MoM increase of 1.7%.

Food inflation to climb to 48.5%

We expect food inflation to clock in at 48.5% YoY this month, with a sequential increase of 4.6% MoM. This would be the fourth consecutive month of sequential food inflation reading above 3.7%, causing YoY trend to remain above 40%. Quantum of food price increases in the past 4 months alone have been equal to what is usually witnessed in a span of 1.5 to 2 years. Moreover, the increase in the last 12 months has been more than food price changes witnessed in a span of 3 years.

Breaking the reasons of the higher food inflation in Apr-2023, the reading is expected to be led by higher Wheat prices, which have shot up by 26% this month alone. The burden was further added by seasonal uptick in fruits and vegetable prices witnessed in the month of Ramadan, that coincided in the month of April.

The consistent higher pace of food price increases has caused a hyperinflation situation and becoming the Achilles’ heel of the escalating inflation since some months. The trend is however expected to tame in the coming months over high base effect.