Inflation seen at highest level in a decade in June
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Loading... - Qarin Sarin
- 24 Jun 2022
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Consumer price inflation likely sped up to over a decade high in June on runaway food and energy prices and currency devaluation, a group of analysts said on Wednesday, reinforcing expectations that the central bank will raise its key interest rate for the sixth consecutive time next month.
Analysts suggested inflation, as measured by the consumer price index (CPI), will rise in the range of 18.1-19.5 percent in June on an annual basis, from 13.8 percent in May. That would be the highest reading since 2009.
They said June CPI to rise almost 20 percent based on recent changes in prices of fuel and other commodities and “the current situation has been compared with the 2008 situation following the global financial crisis”.
The government had twice slashed unfunded fuel subsidies to control fiscal deficit and secure International Monetary Fund (IMF) bailout programme since last week of May. It raised petroleum products prices by Rs60/liter and had also increased electricity tariffs. The government has so far passed on the subsidy burden to the masses by announcing more than Rs84/litre (56 percent) increase in petrol prices and Rs119/litre (82 percent) increase in HSD prices in almost 4 weeks.
The SBP has cumulatively increased policy rate by 675bps during last one year and by 400bps in 2022 to date. This was the highest policy rate increase after 2008 when policy rate was raised by 500bps in a calendar year.
Analyst Umair Naseer at Topline Securities said the country would witness a streak of more than 15 percent inflation for the next 4-6 months, peaking at 21 percent in August 2022.
“For June 2022, CPI inflation is likely to remain in the range of 18.5 percent-19.5 percent on YoY basis (3.9 percent-4.8 percent on MoM basis) as per our estimates.”
Naseer said in the fiscal year 2023, average inflation would likely be around 15.5 percent-16.5 percent compared to Pakistan’s long-term average inflation of 8 percent. He expects FY24 CPI to clock in at 10 percent.
The key assumptions behind these projections included increase in base electricity tariff by Rs7.9/unit or 45 percent in July 2022; 45 percent hike in gas tariff in July 2022; Arab light oil price assumption of $100/bbl in FY23 and $87/bbl in FY24; and 5 percent annual devaluation in FY23 and FY24.
“Current situation of rising CPI trend is also somewhat similar to what was seen during 2010 where inflation remained at around 15 percent for four consecutive months from September 2010 to December 2010 with average FY11 inflation clocking at 14 percent,” Naseer added. Read More…
