Pakistan Economy: CPI decelerates to 10.9% in May at the tail-end of Ramadan

  • National CPI in May clocked in at 10.9% vs 11.1% in April
  • Food inflation moderated at the tail-end of Ramadan – a key reason for the sequential improvement
  • We expect CPI to continue decelerating in the coming months

National CPI moderated slightly to 10.9% yoy in May 2021 vs. 11.1% yoy in April (up 0.1% mom). Urban CPI clocked in at 10.8% yoy (up 0.2% mom) while Rural CPI fell to 10.9% (down 0.03% mom). Broadly, the softening of food inflation at the tail-end of Ramadan in May and a decline in Housing & Utilities index led to a lower reading of NCPI (note that both indices are responsible for keeping the CPI in low double digits recently); otherwise other indices were little changed mom.   

A mild decline was also witnessed in Core inflation in May. Urban core inflation was 6.8% vs. 7.0% in April. Rural core inflation fell to 7.6% vs 7.7% in the previous month. During 11MFY21, Urban and Rural core inflation have averaged 5.9% and 7.6% yoy, respectively.

Within the Food basket, Chicken prices rose over 20% mom, but this was diluted by the c.9% mom decline in prices of perishable items (including fresh vegetables). Urban Food inflation remained high at 15.3% yoy (up 1.1% mom); however, Rural Food inflation softened to 12.8% yoy vs. 14.1% in the previous month.     

In the Housing & Utilities index, prices of Electricity and Liquefied hydrocarbons both fell around 6% mom, which led the 1.2% mom decline in the overall index. The Clothing & Footwear index, which had shot up in the previous month ahead of the Eid holidays, was also relatively flat in May.


National CPI should continue to decelerate in the coming months, possibly creeping back into the high single-digits, in our view. A key variable is whether the government can convince the IMF to let Pakistan delay or moderate hefty power tariff hikes (a pre-condition for the resumption of the EFF program).    

In the May MPS, the SBP kept the policy rate unchanged at 7.0% and also guided that an accommodative stance was appropriate for the near term. The next MPS is due in July; and there is a high probability that the central bank will not change interest rates, insofar as the global pandemic situation and present inflation outlook remains the same (few demand-led factors). However, if the FY22 Budget turns out to be overall expansionary, the SBP could consider increasing rates in July.                      

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