Macro Analysis /
Pakistan

Pakistan Economy: March CPI expected to rise to 13.1%, highest since Jan 2020

  • National CPI is expected to clock in at 13.1% yoy in March 2022, up from 12.2% in February

  • Core inflation (NFNE) is expected to increase further in March. We estimate 8.9% and 10.4% for Urban and Rural centers

  • Rural inflation is expected at 14.3% yoy, which will be higher than expected Urban inflation of 12.3% yoy

Saad Ali
Saad Ali

Head of Research

Intermarket Securities
22 March 2022
  • National CPI is expected to clock in at 13.1% yoy in March 2022, up from 12.2% in February – majorly affected by higher Food and Transport indices. On a mom basis, CPI is expected to increase by 1.1%, similar to 1.16% increase in February; it will be lifted by higher prices of major food items. Rural inflation is expected at 14.3% yoy, which will be higher than expected Urban inflation of 12.3% yoy. 

  • Core inflation (NFNE) is expected to increase further in March. We estimate 8.9% and 10.4% for Urban and Rural centers, respectively (up from 7.9% and 9.2% respectively). This will be the first time in FY22 that core inflation surpasses 9.0% compared with the previous four months’ average of 8.7%. Key indices which are contributing to the rise are Clothing and Footwear, Household equipment and Health, in our view.   

  • Food inflation will be the major contributor to sequentially higher CPI; it is expected to rise by 2.5% mom in March, similar to the increase of 2.3% mom in February. The mom increase is led by significantly higher prices of fruits, in addition to that of chicken and cooking oil. CPI outturn for March should have been higher than our estimate, had it not been for government intervention in the prices of petroleum and electricity in the form of subsidies.

Outlook for CPI and Monetary policy: Despite petroleum and electricity prices being fixed until June 2022, we expect headline CPI to peak over 14.0% in the next six months. This is partly because of higher Food inflation ahead of Ramadan and Eid season and partly low base effect (single-digit readings between June and October 2021). Beyond October 2022, however, CPI is expected to revert to single digits, partly because a high-base effect will kick in. In March MPS, the SBP guided that, if global commodity prices worsen, it will adjust the monetary policy from the present status quo stance. But inflation outlook for FY23 remains relatively soft, 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 April MPS.