CPI inflation eases a bit to 6.5% in November 2018
KARACHI: CPI inflation for the month of November 2018 eased to 6.5% as compared to 6.8% registered in September 2017.
"The inflation reading arrived lower than expectation primarily due to absence of anticipated hike in electricity rates," a Pearl Securities report suggested. Housing & utilities (CPI weightage 29.4%) was the largest contributor in November 2018 headline inflation (2.4pps), mainly on the back of surge in gas prices (85.3%YoY), uptick in house-rent (6.7%YoY), rise in construction inputs/wages (12.5%YoY/11.1%YoY) along with increase in costs associated with water supply (13.6%YoY). Moreover, transport group was another major contributor in November 2018 headline inflation (1.2pps) as price of motor fuel & transport services incremented 28.7%YoY and 17.9%YoY, respectively. Moreover, increase in prices of clothing & footwear (0.6pps) and hike in cost of education (0.5pps) were also amongst major contributors. Core inflation (i.e. non-food, non-energy) clocked in at 8.3%YoY during Nov’18 versus an identical increase of 8.2%YoY depicted in the preceding month. On a MoM basis, NFNE inflation arrived at 0.4% in Nov’18 versus an increase of 1.1% recorded in the previous month. Food inflation arrived at 1.8%YoY during the month as compared to an increase of 2.7%YoY registered in Oct’18, primarily on the back of hike in the prices of food items such as chicken (44.5%YoY), spices (14.0%YoY), meat (12.7%YoY), dry fruits (10.5%YoY), tea (9.4%YoY), rice (9.3%YoY) and several other food group constituents. With regards to inflation outlook, analysts estimate average headline inflation for FY19 to arrive within 7.5%-8.5% range (5MFY19 - 6.02%YoY) due to anticipated re-emergence of food inflation, increase in utility rates & lagged impact of hefty Rupee devaluation. In terms of monetary policy outlook, State Bank of Pakistan hiked key policy rate by 150bps to 10.0% (425bps cumulative hike in CY18) in the last monetary policy announcement of CY18. "With several macroeconomic challenges such as surging oil import bill, depleting foreign exchange reserves and rising inflation truncating country’s real interest rate, we expect SBP to continue hiking interest rates in CY19, albeit at a lower quantum in order to arrest inflationary pressure & provide stability to deteriorating macros," the report said.