Karachi, November 29, 2021 (PPI-OT): Broad inflation to enter double-digits after 5 months

Our Nov’21 headline inflation estimate stands at 10.2% YoY as both food inflation (8.6% YoY) and fuel inflation (22.7% YoY) continue to get exacerbated by the rise in food prices and the ongoing structural bull market for international commodities. In addition to this, housing inflation has also added fuel to the fire after the government moved to increase base load tariff in a run-up to resume the IMF program.

On a sequential basis, we have witnessed a significant jump in prices of essential food items such as tomatoes, potatoes and cooking oil while higher petrol and diesel prices have also continued to transmit into general inflation.

The latest SPI reading for week ending 25th Nov 2021 recorded the first sequential decline (-0.7% WoW) in 7 weeks where we saw a decline in essential food items, however, supply side constraints still remain prominent.

The recent emergence of new COVID variant, Omicron, has slightly relieved the bull run of international commodities, especially oil. Any decline in oil price may likely bode well for our import bill but may unlikely to be relayed onto general inflation as PDL collection is yet to be normalized; as per negotiations with IMF. The increase in long-term inflation expectations is more visible in the movement of secondary market yields which will likely keep the monetary contraction on tenterhooks.