Headline inflation clocks in at 12.54% in February 2020

KARACHI: Headline inflation as gauged by Consumer Price Index (CPI) for the month of February 2020 clocked in at 12.4%.

On a MoM basis, CPI depicted decline of 1.0% in February 2020 versus a rise of 2.0% registered in the previous month.

With regards to inflationary trend in urban and rural areas, urban inflation arrived at 11.2% YoY compared to a higher 14.2% YoY rural inflation, consistent with previous months.

The trend was similar for food inflation which clocked-in at 15.2% for urban and 19.7% for rural areas during the month. Similarly, core inflation was also lower in urban (+8.0%YoY) compared to rural (+9.4%YoY) during February 2020.

Heavyweight food & non-alcoholic beverages group (CPI weightage 34.58%) continued to be the protagonist behind surging inflationary pressures during the month (+18.4%YoY) whereas housing & utilities group (+6.8%YoY) and transport (+19.2%YoY) were other major contributors in February 2020 headline inflation reading.

Consequently, average inflation for 8MFY20 (July-February 2019-20) stood at 11.7% compared to a much lower reading of 6.0% clocked-in during the same period last year.

“With regards to inflation outlook for FY20, despite State Bank of Pakistan (SBP) reiterating its earlier stance of average headline inflation arriving within 11.0%-12.0% range for the current fiscal year, we highlight notable hike in food prices as the predominant factor which could lead to higher than forecasted inflationary levels. However, some respite may come in the form of further cut in domestic petroleum products prices as international oil prices tumble post Corona virus pandemic,” a report issued by Pearl Securities said.

In terms of monetary policy implications, State bank of Pakistan (SBP) kept key policy rate unchanged at 13.25% in the recent monetary policy committee meeting held in January 2020. “Going forward, we highlight seasonal factors (Ramadan) which are likely to keep prices on the up and inflationary pressures elevated. Moreover, subsidence in food inflation remains the primary factor which could lead to initiation or delay in reversal of interest rate cycle”.

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