Karachi, September 02, 2021 (PPI-OT): Aug-2021 CPI at 8.35% – pressure likely in the remaining of FY22

Headline inflation increased by 8.4% YoY in Aug-2021, similar levels to last month and lower than the average of 9.7% YoY in the preceding five months.

Sequentially, headline inflation rose by 0.6% MoM, on account of (1) surge in certain food items, such as tomatoes and fresh vegetables and (2) increase in petroleum products’ prices.

WPI inflation remained on the higher side and increased by 17.2% YoY in August. The average of last five months clocks in at 18.3%. We reiterate the number is alarmingly high as the gap between WPI and CPI remains at 8.8% and shows there is significant supply side pressure to food inflation in particular.

With persistently high global oil and commodity prices, inflationary pressure will most likely sustain over the coming months. Additionally, the rupee continues to depreciate (6% in YTD FY22) and currently stands at Rs166.9/US$. While our base case estimates for FY22 CPI stand at 8%-9%, we do not rule out negative surprises from the energy cost front.

Balance of a pro-growth agenda via monetary/fiscal policy measures while keeping an eye on rising prices is expected to be a key challenge in the near future.