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JS Securities Limited – JS Research (04-10-2021)

Karachi, October 04, 2021 (PPI-OT): CPI spikes to 9% in September 2021

The broad inflation for Sep-2021 rose 9.0% YoY against 8.4% in the previous month mainly on account of jump rise in Food, Fuel and Housing inflation. It is noteworthy that food and fuel inflation have been on a rising trajectory primarily owing to demand side pressures as opening up of economies continue to spur the increase in international commodity prices and it is also being reflected in the Restaurant index of CPI.

On a sequential basis, Food inflation rose by 4.0% owing to increase in prices of chicken, ghee, cooking oil, eggs, wheat, meat and sugar. In the Housing index, electricity charges rose substantially, whereas rising oil prices continue to transmit the impact in Fuel inflation.

The Urban core inflation for Sep-2021 rose mildly to 6.4% YoY from 6.3% in Aug-2021, whereas the rural core inflation has stayed constant at 6.2%. Core inflation has come down from its recent peak of 7.0% Urban-core and 7.7% Rural-core in Apr-2021, depicting non-food non-energy inflation continues to remain low and the movement in broad inflation from food and fuel is transitory.

Despite the recent efforts by the government to curb import of non-essential items, the elevated momentum in food and fuel prices continues to pose risks to SBP’s medium term inflation target of 5-7%, which is also slated to be impacted by paring of base effect in the early months of FY22.