Karachi, September 28, 2021 (PPI-OT): Pakistan’s Sep-2021 inflation to clock in at 8.43%

We expect Pakistan’s headline inflation to clock in at 8.43% for Sep-2021 as food inflation from essential items continues to seep into general inflation. In addition to this, rising oil prices along with mild sequential increase in petroleum levy continues to push fuel inflation.

The inflation print, albeit higher by 1.6% MoM, will likely be at similar level of 8.35% in Aug-2021 and lower than 9.03% in Sep-2020. Food inflation is expected to jump from rise in wheat, chicken, eggs, pulses, onion and sugar prices.

Our benchmark Arab light prices have jumped 5.5% during Sep-2021 and remain elevated at US$77.4/bbl, 87% higher from a year ago. On the other hand, the government continues to abate the fuel inflation by keeping petroleum levy and sales tax lower than the required levels.

Food inflation remains stubbornly high and it has caused the government to indicate intentions of softening food inflation by intervening the domestic market. Government has already announced sales tax reduction on edible oil/ghee and targeted allocation of subsidies for the weak segment of the population. We believe that the government may likely strengthen their concerted efforts with the utility stores to be able to soften food inflation in the near-term as the upcoming energy tariff and fuel rate hikes are expected to push the non-food inflation more than desired levels, rendering broad inflation to exceed SBP’s medium-term target of 5-7%.