Karachi, February 15, 2022 (PPI-OT): Food inflation to keep CPI above 12% in Feb-2022
The headline inflation reading for Feb-2022 is expected to clock in at 12.57% as inflationary outturns with respect to food inflation continue to remain high. Tomato, fresh fruits and chicken prices, have shown an extremely volatile trend during Feb-2022, adding more than 80% to our food inflation estimate for Feb-2022.
The declining trajectory of food inflation from previous month has been unable to stand its ground. However, the fuel inflation is likely to stay low for Feb-2022, mainly on account of mild increase in fuel prices during mid of Jan-2022.
IMF conditions in terms of increasing PDL collection from retail fuel sales will likely increase fuel inflation, going forward. Oil is at 7-year high, we expect inflation to capture increase in retail fuel prices beyond Feb-2022. With the passing-on of inflationary impact from Finance (Supplementary) Act 2021, along with high food and fuel inflation outturns, our inflation forecast for FY22 has slightly increased to 11.3% from 11.0% previously.
Food is the key culprit in Feb-2022
After a reading of 13%, a 2-year high, in Jan-2022, the headline inflation reading for Feb-2022 is estimated to reach 12.57% as inflationary outturn with respect to food inflation continue to remain high. Even though Jan-2022 had set a higher base from quarterly house rent adjustment and higher fuel rates, perishable food prices namely chicken, fruits, tomatoes and other fresh vegetables will likely continue to increase sequential movement of CPI.
Tomato, fresh fruits and chicken prices, have shown an extremely volatile trend during Feb-2022, adding more than 80% to our food inflation estimate for Feb-2022. Owing to supply side constraints, food inflation that has been on a declining trajectory lately will likely witness a spike.
The declining trajectory of food inflation from previous month has been unable to stand its ground. However, the fuel inflation is likely to stay low at 0.4% MoM for Feb-2022, mainly on account of mild increase in fuel prices during mid of Jan-2022.
Inflation to likely continue its momentum ahead
IMF conditions, in terms of increasing PDL collection from retail fuel sales, will likely increase fuel inflation, going forward. From current rate of Rs13.92/litre, it will take till Jun-Jul’22 for the government to be able to reach targeted level of Rs30/litre.
Oil prices are at a 7-year high and we expect inflation to capture increase in retail fuel prices beyond Feb-2022, where the fuel inflation outturn is calculated to impact our FY22 forecast by 0.07ppt (0.94ppt for a monthly increase in retail fuel prices) for a one-time increase in fuel-rate. (Please refer to our note “Triple digit oil prices and Pakistan key macros”). Nevertheless, the Feb-2022 will unlikely witness a massive hike in fuel inflation after government did not concede the increase in oil prices by reducing PDL and GST rate.
With the passing-on of inflationary impact from Finance (Supplementary) Act 2021, along with high food and fuel inflation outturns, our inflation forecast for FY22 has slightly increased to 11.3% from 11.0% previously. SBP has turned away from the concerns over inflationary outturns, maintaining negative real rates for near term, where fiscal measures (read: mini-budget) are expected to bring the required growth stability and fiscal consolidation; however, such high inflationary outturns are expected to continue keeping market participants on tenterhooks.