Karachi, December 02, 2022 (PPI-OT): Nov-2022: Core inflation still a concern

CPI reading for Nov-2022 clocked in at 23.8%, in-line with our estimates, taking 5MFY23 headline inflation to 25.16%. While stability was reflected in food and energy prices, CPI registered a 77bp MoM increase over higher core inflation.

Core inflation for Urban / Rural regions witnessed MoM uptick of 0.8% / 2.1%, respectively. The YoY trend for Urban core inflation slightly subsided, however the same in Rural region further increased to 18.5%.

Further increase in the said indicator should not rule out continuation of monetary tightening cycle that SBP recently resumed.

Nov-2022 CPI at 23.8%, +0.8% MoM

CPI reading for Nov-2022 clocked in at 23.8%, in-line with our estimates, taking 5MFY23 headline inflation to 25.16%. On a MoM basis, CPI witnessed a change of 77bp as food and energy prices finally reflect stability. The stability in sequential inflation trend is contributed by unchanged POL prices this month as lower ex-refinery prices assisted in retail POL product prices to remain at previous levels while gradually increasing PDL on MS and HSD. Data also reflects no major change in food items but Onions (weight: 0.6%, +30% MoM). This took YoY food inflation to 31%, lowering the pace when compared to previous month’s record of 36% YoY. Moreover, pace of WPI has also drastically declined from its high of 41% in Aug-2022 to now 28%.

Core inflation continues to increase

Core inflation for Urban / Rural regions witnessed MoM uptick of 0.8% / 2.1%, respectively. While YoY trend for urban core inflation slightly subsided, the same in Rural region further increased to 18.5%. To recall, the State Bank of Pakistan (SBP) recently resumed monetary tightening cycle parallel to core inflation trend going beyond expectations. Further increase in the said indicator should not rule out continuation of the tightening cycle.

We, however, keep our Policy Rate estimate unchanged till Jun-2023 as we expect inflation trend to tame from here onwards. Having said that, increase in electricity and gas tariffs amid ongoing IMF program, following impact of these through second-round effects are key risks to our average FY23 projections of 23% and to base case Policy Rate assumptions.