KARACHI:  Consumer Price Index (CPI) for the month of December 2019 rose 12.6 percent as compared to a similar increase of 12.7 percent registered in November 2019.

On a MoM basis, CPI depicted meager decline of 0.3% in Dec’19 versus a rise of 1.3% registered in the previous month.

With regards to inflationary trend in urban & rural areas, urban inflation arrived at 12.0% YoY compared to a higher 13.6% YoY rural inflation.

The trend was similar for food inflation which was clocked-in at 16.7% for urban & 19.7% for rural areas during the month. Moreover, core inflation was lower in urban (+7.5%YoY) compared to rural (+8.1%YoY) during December 2019.

Heavyweight food & non-alcoholic beverages group (CPI weightage 34.58%) was the primary driver behind surge in inflationary pressure during the month (+19.7% YoY) whereas housing & utilities group (+8.5% YoY) and transport (+14.7% YoY) were other major contributors in December 2019 headline inflation reading.

Consequently, average 1HFY20 (July-December 2019) inflation stood at 11.1% YoY compared to a much lower reading of 6.0% YoY clocked-in during the same period last year.

“With regards to inflation outlook for FY20, we anticipate average headline inflation to range within 11.0%-12.0% for the current fiscal year which is in-line with State Bank of Pakistan (SBP) and IMF’s revised forecast. Predominant factors behind double-digit inflationary level for FY20 include surging food prices, higher gas/power tariffs, elevated petroleum prices and continuous increase in cost of essential services i.e. health, education etc.,” Pearl Securities said.

In terms of monetary policy implications, State bank of Pakistan (SBP) kept key policy rate unchanged at 13.25% in the last monetary policy committee meeting of the year. With next monetary policy stance to be unveiled during the current month, “we highlight subsidence in food inflation as the primary factor which could lead to initiation or delay in reversal of interest rate cycle”.

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