KARACHI: Consumer Price Index (CPI) for the month of Feb’19 rose 8.2%YoY as compared to an increase of 7.2%YoY registered in Jan’19. On a MoM basis, CPI incremented 0.6% in Feb’19 versus a rise of 1.0% registered in the previous month.
Housing & utilities (CPI weightage 29.4%) continues to be the largest contributor in headline inflation (11.6%YoY), mainly on the back of hike in gas (85.3%YoY) & electricity tariff (8.5%YoY), rise in construction inputs/wages (11.9%YoY/9.0%YoY) along with increase in costs associated with water supply (12.2%YoY).
Also as per market expectations, food prices have started to rise with food & Non-alcoholic beverages group (CPI weightage 34.83%) depicting increase of 4.5%YoY during the month. Transport group was another major contributor in Feb’19 headline inflation (13.3%YoY) as price of motor fuel & transport services incremented 13.8%YoY and 14.8%YoY, respectively.
Moreover, increase in prices of clothing & footwear (6.9%YoY) and hike in cost of education (10.2%YoY) were also amongst major contributors in Feb’19 inflation reading.
Core inflation (i.e. non-food, non-energy) clocked in at 8.8%YoY during Feb’19 versus an identical increase of 8.7%YoY depicted in the preceding month. On a MoM basis, NFNE inflation arrived at 0.2% in Feb’19 versus an increase of 1.1% recorded in the previous month.
Food inflation arrived at 5.0%YoY during the month as compared to an increase of 2.4%YoY registered in Jan’19, primarily on the back of hike in the prices of several food items such as tomatoes (179.4%YoY), spices (16.6%YoY), honey (14.2%YoY), sugar (13.9%YoY), meat (13.8%), dry fruits (11.8%), tea (11.1%) and several other food group constituents.
During 8MFY19 (July-Feb 2018-19), headline inflation clocked-in at 6.5%YoY compared to 3.8%YoY during the same period last year.
“With regards to inflation outlook, we estimate average headline inflation for FY19 to arrive within 7.5%-8.5% range due to further rise anticipated in food inflation, higher utility rates & lagged impact of hefty PKR devaluation,” a report issued by Pearl Securities said.
In terms of monetary policy outlook, State Bank of Pakistan hiked key policy rate by 25bps to 10.25% in the first monetary policy announcement of CY19. “With several macroeconomic challenges such as mammoth import bill, pressure on foreign exchange reserves amid hefty debt servicing and rising inflation truncating country’s real interest rate, we believe SBP will hike rates further in CY19, albeit at a lower quantum, in order to arrest inflationary pressure & stabilize deteriorating macros,” Pearl Securities report noted.