Karachi, March 20, 2023 (PPI-OT): Mar-2023 inflation to break further records over announced macro adjustments
CPI for Mar-2023 is expected to clock in at 34.34% YoY, once again, highest since at least 1965, with MoM increase coming in at 2.95%, the third consecutive month of more than 250bp MoM inflation increase, which historically hovers around an average of 80 – 100bp.
In addition to higher food being the usual culprit, higher gas prices amid long-due adjustment in gas tariffs and higher cigarette prices over recently applied higher FED are among key drivers.
As our workings for projected CPI suggest CPI to clock in just shy of 40% by May-2023, before decelerating its growth pace, the forward rolling CPI remains above the existing Policy Rate of 20% till at least Apr-2023, keeping expectations of another 100bp hike in the Monetary Policy announcement scheduled on 4 April, 2023.
Mar-2023 expected to cross 34%
CPI for Mar-2023 is expected to clock in at 34.34% YoY, once again, highest since at least 1965, with MoM increase coming in at 2.95%, where in addition to higher food being the usual culprit, higher gas prices amid long-due adjustment in gas tariffs and higher cigarette prices over recently applied higher FED are among key drivers. This would be the third consecutive month of more than 250bp MoM inflation increase, which historically hovers an average around 80 – 100bp.
As Feb-2023 CPI data suggested the mid-month POL product price increase was also incorporated in Feb’s inflation readings, incorporating the same practice for this month would take expected CPI to 34.5%. To recall, government has announced up to Rs13/ltr increase in POL prices in mid-March, while transport prices for the purpose for CPI calculation are collected during 7th to 10th of each month as per PBS.
Continuing ongoing trajectory, core inflation is expected to reach to 25% this month, crossing the high last made 14 years ago. The higher core inflation indicates second round of inflation in various segments of the inflation basket, which are likely triggered by the sharp energy prices and PKR depreciation witnessed in the past couple of months.
Another 100bp PR hike expected in Apr-2023
As our workings for projected CPI suggest CPI to clock in just shy of 40% by May-2023, before decelerating its growth pace, the forward rolling CPI is expected to remain above the existing Policy Rate of 20% till at least Apr-2023, assuming no relief from a prospective decline in commodity prices. With the next Monetary Policy announcement on 4 April, 2023, the same is expected to transpire with another 100bp hike expected. Secondary market yield and KIBOR movements have crossed 21%, however so far only 115bp above the prevailing Policy Rate.