August 2019 CPI clocked in at 10.5 percent

KARACHI: As per press release issued by Pakistan Bureau of Statistics (PBS), CPI inflation in August 2019 stood at 10.5% YoY (with new base year) while recorded 11.6% growth on old base year.

CPI number is inline with market estimate of 11.5% (old base). The major reason behind MoM CPI growth of 1.64% was on the back of higher food prices up by 3.4% (MoM).

Within food index, prices of chicken, tomatoes, onions and fresh vegetables witnessed significant increase during the month. Higher food prices during the outgoing month can be attributed to Eid ul Adha event and supply side disruption on the back of heavy rainfalls.

Inflation has achieved its peak in August, since the major cost push adjustments have already been taken place (budgetary measures and hike in utility prices).

Thus, analysts believe that September CPI number as per new base would be close to 10.5% which may come down to 9.5-10.0% in November 2019 (as higher base will also drag inflation).

In light of new development, analysts see State Bank of Pakistan (SBP) may cut policy rate earlier than our previous assumption from March 2020.

“We now believe that SBP may closely watch CPI numbers for the next few months and maintain status quo in the upcoming monetary policy while may cut policy rate in November by 50-75bps, provided that international oil price to stay at current levels,” a report issued by Sherman Securities said.

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