Karachi, January 26, 2022 (PPI-OT): Another inflation peak in Jan-2022

The sequential movement in CPI is expected to flare back up to a rate of 0.69% MoM in January from a tepid decline of 0.01% last month as energy tariff hike, quarterly house rent adjustment and higher fuel rates continue to exert inflationary pressures against the mellowing down of food inflation. We expect Jan-2022 broad inflation to make another peak of 13.3% against 12.3% in December.

Food inflation has been on a declining trajectory lately, also depicted by the sequential decline in SPI over the latest weeks. However, increase in fuel prices continues to get transmitted into fuel inflation index coupled with increase in public transport fares.

While sequential movement in CPI has moderated, the YoY rise in CPI will continue to remain high owing to base effect. Core inflation rose significantly last month which will be added on by removal of tax exemptions in the Finance (Supplementary) Act. Core inflation has risen significantly over last couple of months which will be c.11% for FY22 and no single-digit print during the ongoing fiscal year.

CPI to peak at 13.3% in Jan-2022

We expect CPI for Jan-2022 to reach 13.3% YoY as sequential movement in inflation is expected to flare up again, clocking in at 0.69%MoM in Jan-2022 against a tepid decline of 0.01% in Dec-2021. This is primarily due to the increase in energy tariff being stipulated by the authorities to overcome cross-subsidies and circular debt. In addition to this, Jan-2022 will also experience the quarterly house rent adjustment which will keep house index inflation at the higher end.

Motor fuel inflation will add this month

During Dec-2021, motor fuel inflation declined as the government reduced POL product prices, albeit temporarily. However, the jump in overall fuel inflation was primarily due to the increase in public transport fares under taken by several metropolitan cities in a bid to pass on the rise in retail fuel prices. This has set a higher index for fuel inflation which will likely keep fuel inflation at the higher end. Hence, in spite of a visible decline in food inflation, specially from perishable goods, tomatoes, onions, chicken, other non-food items in the CPI basket will continue to have a negative bearing on inflationary outturns.

Inflationary pressures will persist

The sequential increase in the CPI inflation has largely moderated, however, Dec-2021 print also showed a spike in core-inflation. Despite recent declining movement in SPI index, primarily perishable food items, administrative steps to combat circular debt in terms of energy tariff hike along with removal of tax exemptions in the Finance (Supplementary) Act will continue to keep inflationary outturns at the higher end. We expect inflation to average c.11% for FY22 and no single-digit print during the ongoing fiscal year.