JS Securities Limited – JS Research (07-11-2019)

Karachi, November 07, 2019 (PPI-OT): CPI comes in fashionably late; signals status quo in the policy rate decision expected soon

Headline inflation during Oct-2019 registered YoY growth of 11.04% under the new base year (2015-16), compared to 11.37% in Sep-2019. On MoM basis, CPI increased by 1.82%, compared to 0.77% increase in Sep-2019. Interestingly, had the CPI been announced in a timely manner, cut-off yields in yesterday’s T-Bill auction might have been slightly higher. Also, the latest inflation reading supports the widely accepted view of status quo in the upcoming MPS despite the falling secondary market bond yields.

Headline inflation during Oct-2019 registered YoY growth of 11.04% under the new base year (2015-16), compared to 11.37% in Sep-2019. On MoM basis, CPI increased by 1.82%, compared to 0.77% MoM increase in Sep-2019. The increase in sequential inflation during the month was mainly attributable to increase in the electricity charges, surge in the price of fresh vegetables, quarterly adjustment in the house rent index and various items under the food index. Moreover, the Urban Consumer Price Index (UCPI) increased by 10.86% YoY and 1.59% MoM during the month, whereas the Rural Consumer Price Index (RCPI) increased by 11.33% YoY and 2.17% MoM. Refreshingly, core inflation was lower in both UCPI and RCPI at 7.7% YoY and 8.6% YoY, respectively, compared to 8.4% YoY and 8.8% YoY in Sep-2019.

According to the previous base, i.e. 2007-08, headline inflation increased by 11.08% YoY in Oct-2019, compared to 12.55% YoY in Sep-2019, whereas on a sequential basis, CPI increased by 1.00% MoM compared to 0.76% MoM in Sep-2019. Putting aside the fact that the inflation number was higher than the consensus, the announcement being made nearly a week late is interesting in itself, especially considering that it coincided with the T-Bill auction. Had the CPI been announced in a timely manner, cut-off yields might have been slightly higher. Moreover, the latest inflation reading supports the widely accepted view of status quo in the upcoming MPS despite the falling secondary market yields.

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