Macro Analysis /

Pakistan Economy: CPI rose by 12.7% in March; slightly lower than expectation

  • National CPI for March'22 clocked in at 12.7% yoy, lower than our expectation. It has increased from 12.2% in February

  • Lower Electricity and Fuel indices largely contained the CPI under 13%, in our view

  • We expect Inflation to average around c.13% over the next six months, vs. previous estimate of 12%

Intermarket Securities
1 April 2022
  • National CPI for March 2022 clocked in at 12.7% yoy, lower than our expectation of 13.1%. It has increased from 12.2% in February and it is the fourth consecutive CPI reading of over 12%. On a mom basis, CPI rose by 0.8%, compared with 1.2% in February, driven majorly by changes in the Food and Education indices. Rural and Urban inflation came in at 13.9% and 11.9% yoy, compared with 14.3% and 10.3% in February, respectively.

  • Core inflation (NFNE):. Urban core inflation in March accelerated to 8.9% yoy from 7.8% in February (up 1.2% mom); Rural core inflation has increased to 10.3% in March, lower than previous outturn of 9.4% (up 1.1% mom). Core inflation rose by over 1% mom after increasing less than 1% in the previous month.    

  • Food and Education indices were the major contributors to sequentially higher CPI. Food inflation has risen by 2.5% mom, mainly due to elevated prices of chicken, cooking oil prices and other perishable items. On the other hand, Education index increased by 4.7% mom in March (up 14.6% yoy). During the month, lower electricity and fuel prices have played an important role in keeping CPI under 13%.

Outlook for CPI and Monetary policy: After the incentive package provided by PM Imran Khan, in the form of reduced oil and electricity prices, the CPI is likely to peak around 14% in June and July. Thus, we assume that CPI monthly average in next 6 months will remain at 13.1%; but post November 2022, higher base effect and possible decline in international commodity prices will restrict monthly inflation to single digits.

In March MPS, the SBP guided that if global commodity prices worsen, they may call an emergency meeting and will adjust the monetary policy from present status-quo stance. But, they guided that the inflation outlook for FY23 remains relatively soft. On a positive front, global commodity prices have recently corrected somewhat, and February CAD was an encouraging US$0.5bn (down 78% mom). On the other hand, fixed income rates have risen 115bps in the auctions following the last MPS. All in all, we think there is a possibility of a 50bps increase in policy rate in the April MPS