Karachi, September 02, 2022 (PPI-OT): Aug-2022 CPI touches 27%, floods worsen the situation

CPI for Aug-2022 clocked in at 27.2% YoY, marking another multi-decade high. With a MoM increase of 2.5% this month, the country’s CPI has cumulatively increased more than 13% in the last 3 months alone. For perspective, an increase of this pace is usually witnessed in a span of 12-18 months.

WPI has reached to 41.2% in Aug-2022, an alarming level for the prospective CPI. Going forward, while the country is yet to bare the extended impacts from higher energy prices and escalating WPI, woes are to be added from the ongoing catastrophic floods in the country.

While our pre-flood FY23 CPI estimates stand at 21%, we do not rule out an upward revision in the same as we receive clarity over quantifiable loss in the floods.

Second round impacts begin to reflect

CPI for Aug-2022 clocked in at 27.2% YoY, marking another multi-decade high. With a MoM increase of 2.5% this month, the country’s inflation index has cumulatively increased more than 13% in the last 3 months alone. For perspective, an increase of this pace is usually witnessed in a span of 12-18 months. Reasons of the higher inflation readings – levies and unwinding of subsidies on energy prices, have been repeatedly discussed earlier.

From Aug-2022, inflation has begun to prominently indicate bearings of second round impacts caused by higher energy prices and monsoon distresses. Food inflation in Aug-2022 touched 30.2% – highest since Oct-2008 (31.7%), while non-food non-energy inflation has touched 13% – 16%, levels last reported during 2009.

Aug-2022 WPI reaches 41.25%

WPI – including semi and finished goods, gauges price movement on a primary and wholesale market level. WPI has reached to 41.2% in Aug-2022, an alarming level for the prospective CPI. While some of this increase could be driven by a few segments that have already been captured in CPI by now, WPI is understood to catch up to the food segment in CPI basket at a faster pace, as compared to non-food segments.

The index has cumulatively increased by 23.7% in the past 7 months, when CPI’s cumulative jump has been 17%. While the increase in both indices do not have to be equal, a consistent higher sequential increase in WPI does keep probability of a partial spill over to upcoming headline inflation readings.

Flood impacts to add woes

While the country is yet to bare the extended impacts from higher energy prices and escalating WPI, woes are to be added from the ongoing catastrophic floods in the country. We highlight, among the top contributing constituents of the WPI basket are milk (11.5% weight) and cotton and fibre crops (10.6% weight). Damaged wheat stocks, cotton, rice and vegetable crops and shortage of livestock are a significant risk to near future food prices in the first round. To understand the significance of the same, we highlight agri segment contributes 26% to the WPI basket. While our pre-flood FY23 CPI estimates stand at 21%, we do not rule out an upward revision in the same as we receive clarity over quantifiable loss due to floods.