IGI Securities Limited – Day Break (02-04-2021)

Karachi, April 02, 2021 (PPI-OT): Economy: Mar-21, Inflation Rose To +9.1% as Food prices continue to escalate

Monthly inflation rose to 9.05% y/y (+0.4%m/m) compared to last month, 8.7% (+1.8%m/m) taking 9mF21 period average to 8.4%y/y compared to last year, 11.7% y/y.

Key reason for monthly uptick in inflation is due to higher Food prices +11%y/y (+1.7% m/m) largely driven by perishable commodities.

Absence of electricity price increase and reduction in transportation charges eased Non-food inflation by 0.4%.

The Food prices increase remained much more pronounced in urban index increasing by +10.3% y/y (+1.3% m/m) compared to +9.1% y/y (0.2% m/m) under rural index.

Ramadan-led seasonal demand and expected electricity and gas price hike would drive inflation further to a double digit figure in the remaining months leading up to FY21.

Monthly inflation prints a +9.05% y/y growth

For the month of Mar-21, headline CPI inflation printed a growth of 9.05% y/y (+0.4%m/m) compared to last month, 8.7% (+1.8%m/m). This takes, 9mF21 period average to 8.4%y/y compared to last year, 11.7% y/y.

Likewise, on a monthly basis, urban index experienced a much slower growth +0.27%m/m to 8.75%y/y (following a +2.3%m/m growth last month) compared to rural index up by +0.5%m/m to 9.5%.

Key group adding to monthly uptick included food (+1.75%), clothing and footwear (+1.0%), Household equipment (+1.02%) on m/m basis. Whereas, utilities (housing, water, electricity, gas and fuel) group pulled down inflation by 1.65%, followed by transport (0.65%) and misc. (0.47%).

Food price surge continues largely driven by perishable commodities

During the month food prices recorded an increase of +1.7% m/m and +11% y/y. Primarily the rise in food price this month was largely driven by perishable food items (+3.3%m/m) which included poultry products namely (eggs: +12.9% m/m, chicken: +6.6% m/m), followed by potatoes: +9.5%m/m, sugar: +4.8%m/m, Wheat flour: + 1.5%m/m. Moreover, in comparison, increase in food prices was more pronounced in urban index increasing by +10.3% y/y (+1.3% m/m) compared to +9.1% y/y (0.2% m/m) under rural index.

Non-food Inflation eases by 0.4% m/m

Under non-food inflation eased by 0.38% m/m notable among which is a decline in electricity prices (-8.1%m/m) and transportation charges (-3%m/m).

Core prices continue to show a rising trend

Elevated inflation levels are visible across all divisions including core Inflation as measured by non-food, non-energy (NFNE) whereby Urban NFNE inflation swelled by +6.3% y/y (0.2% m/m) and rural NFNE inflation displayed a rise of +7.3% y/y (+0.3% m/m).

Outlook

With ‘Ramadan’ around the corner, we expect seasonal demand stemming from it to drive inflation for FY21. This pent-up demand and low base effect will push inflation in double digits, in the coming months. Moreover, on non-food prices expectation of gas and electricity price hike will potentially add further upward pressure on headline. While, respite amid recent decision to slash POL prices (by up to Rs.3 per litre) may to some extent contain inflationary pressures in Apr-21.

Leave a Reply