Karachi, November 02, 2022 (PPI-OT): Oct-2022 CPI at 26.6%, another push to the base

CPI for Oct-2022 once again surpassed street estimates (~23%), clocking in at 26.6% YoY, qualifying for among the top 10 CPI readings in the country’s history.

With a MoM increase of 4.7%, the cumulative jump since start of FY23 goes to 10% in just four months, otherwise witnessed in a span of 9 – 10 months, key reasons being higher food inflation and electricity price adjustment.

Oct’s CPI readings once again push base even higher, keeping estimated CPI above 22% till May-2023 in a scenario where MoM inflation increases by 50bp in each of the remaining months of FY23. We present a scenario analysis of FY23E CPI on various MoM growths.

Another month of among highest inflation readings in history

CPI for Oct-2022 once again surpassed street estimates (~23%), clocking in at 26.6% YoY, qualifying for among the top 10 CPI readings in the country’s history. With a MoM increase of 4.7%, the cumulative jump since start of FY23 goes to 10% in just four months. For perspective, jump of a similar quantum is usually witnessed in a span of 9 – 10 months. Key reasons of the high inflation reading were (1) +35% YoY higher food inflation and (2) reversal of electricity price adjustment that was implemented in Sep-2022.

Food inflation clocked in at 35%/37% for Urban/Rural regions, respectively, where MoM increase was 5%/6% for the respective regions. This is in-line with the expected aftermath of floods, as was also witnessed post 2010 floods. The higher contributing items this month were Onions (+25% MoM), Tomatoes (+28% MoM), Wheat (+12% MoM) and Milk (+3% MoM).

The Index of electricity price increase recorded 89% YoY growth, contributing 400bp to the YoY CPI increase alone. To note, electricity price itself has been recorded at Rs4.25/unit, which was Rs6.43 in Sep-2022 and Rs9.38 in Aug-2022.

Core inflation catches pace, WPI takes a breather

Continuing ongoing trajectory, core inflation further increased in Oct-2022. The Non-Food Non-Energy (NFNE) inflation for Rural region increased by 18.2%, where Urban NFNE was recorded at 14.9%. These levels again are highest witnessed in the last 13 years. The higher core inflation indicates second round of inflation in various segments of the inflation basket, which are likely triggered by the sharp energy prices and PKR depreciation witnessed in the past couple of months.

We highlight, wholesale price index (WPI), the indicator measuring price trends of goods before sold at retail, has finally begun reporting a decline in its pace, clocking in at 32.6% in Oct-2022, vis-a-vis 1QFY23 average of 40% YoY.

Base further increases pushing FY23E CPI

Oct’s CPI readings have once again pushed the base even higher, where potential cost pressures may now keep CPI above 22% till May-2023 in a scenario where MoM inflation increases by 50bp in each of the remaining months of FY23. Nonetheless, this also increases the probability of FY24F CPI to average in single-digits over higher base. We present a scenario analysis over average CPI readings for FY23E on various MoM increase.