Karachi, January 03, 2022 (PPI-OT): Broad inflation for December clocks in at 12.3%

Headline CPI for Dec-2021 clocks in at 12.3%, in line with our expectations, after the inflation index remained unchanged from the previous month, depicting -0.01% change MoM. This reading sets a higher base for January where a quarterly house rent periodic adjustment takes place; rendering inflation to continue its upward momentum.

The monthly print does not reflect the Rs5/litre decline in retail fuel prices that was administered on Dec15’21. Fortnightly announcement of an increase of Rs4/litre in retail fuel renders no respite in fuel inflation as international oil prices continue to mount over COVID19 (Omicron) concerns.

The average inflation for 1HFY22 now stands at 9.8%, closer to the lower end of central bank’s expectations for FY22. We believe that international commodity prices will continue to be a bane for inflation over the coming months and respite to emerge in FY23. Our inflation expectation for FY22 now stands at 11.02%.

Dec-2021 inflation print clocks in at 12.3%

Pakistan’s Dec-2021 inflation came in at 12.3% YoY as decline in food inflation brought respite to sequential rise in the prices of other goods in the basket of inflation, namely, housing, clothing, fuel and restaurant indices.

Food inflation declined 3.35% MoM in Dec-2021 against a rise of 3.96% in Nov-2021 as major commodity prices declined, namely tomatoes, potatoes, onions, chicken, and some other vegetables. On the other hand, increase in housing index came primarily from higher electricity tariff as NEPRA continues to announce adjustments to fuel costs. Moreover, increase in prices of footwear by Bata Pakistan coupled with higher cotton price and higher woollen garment prices in winter augured a spike in clothing index. In addition to this, increase in marriage hall charges during the winter season (read: wedding season) caused a spike in restaurant index.

Fuel inflation remained relatively low as public transporters decided to increase fares within various metropolitan cities in a bid to pass on the rise in retail fuel prices. This monthly print does not incorporate any decline in fuel prices in mid-December 2021 and which is likely to remain mellow after the government decided to increase retail fuel prices by Rs4/litre.

Core inflation spikes; FY22 inflation to average at 11.02%

Core inflation, urban and rural, has jumped to 8.3% and 10.8% in Dec-2021 from previous month’s print of 7.6% and 8.2%, respectively. In addition to this, average inflation for 1HFY22 now stands at 9.8% against 8.63% during the same period last year. We expect inflation to average at 11.02% for FY22 which is on the higher end of SBP’s target range of 9-11% for the current fiscal year.