Karachi, October 31, 2022 (PPI-OT): Pakistan Economy: Inflation pressure likely to ease off

CPI inflation for the month of Oct’22 is likely to settle around 21.3%, the lowest it has been recorded since May’22. This comes on the back of monthly inflation reading of 0.3%MoM and takes the average inflation during 4MFY23 to 24.2%.

However, our headline inflation estimates comes with a catch as it is calculated with the base electricity tariff of PkR6.4/unit that appeared in PBS’ calculations for Sept’22 CPI. Note, last month’s confusion in calculations of CPI saw PBS using different numbers for calculating CPI and SPI which resulted in CPI reading surprising our estimates.

Our official CPI estimate also does not incorporate any reversal in the relief given in the last month’s electricity tariff which was to be reversed in 6 equal installments as there has been no clarity available on the subject matter and the adjustments are not visible in weekly SPI data either.

Food inflation has continued to soar unabated and hovering close to 32%YoY in Oct’22, close to 14yr record it set in Aug’22. On monthly basis, the food inflation is expected to settle ~1.9%MoM and is driven by increase in prices of Milk and Wheat and their derivatives.

Barring any major surprises, the headline CPI inflation seems to have peaked out but will remain elevated at current levels owing to energy inflation in the coming winter months where we may see energy mix shifting away from cheaper sources of energy. The major fall in headline inflation will come from Jun’23 where the headline inflation could fall to 12% – 14%, amid high base effect.