Macro Analysis /

Pakistan Economy: Red-hot CPI on food inflation and energy tariff adjustments

  • Pakistan’s CPI has rebounded to 26.6% in Oct, nearing its recent record high of 27.2% in Aug’22

  • Latest spikes have come from the unwinding of relief from fuel tariff adjustments and the throbbing food inflation

  • Core inflation maintains uptrend, where national core inflation now stands 1.2ppt above policy rate

Intermarket Securities
2 November 2022

Pakistan’s CPI has rebounded to 26.6%YoY in Oct’22, sharply up from its 23.2% print in Sep’22. The latest print is near the record high of 27.2% in Aug’22, with the latest spike in inflation coming from the unwinding of relief from fuel tariff adjustments, topped up by quarterly adjustments in energy tariff, as well as elevated food inflation. High perishable prices have followed the floods, where wheat prices also continue to add heat to the food index. Core inflation is also maintaining its uptick, where the national core inflation now stands 1.2ppt above the policy rate.

  • Food inflation continues to have a major impact on headline inflation, which is up 4.7% MoM in October after increasing by a sharp 5.8% MoM in September. This is primarily because perishable prices continue to remain impacted by floods. The key needle movers were wheat, onions and tomatoes.

  • Housing index has added the most in sequential movement in inflation as the unwinding of fuel tariff adjustment relief was topped up by quarterly tariff adjustments. This lifted the Electricity index by c.90% MoM. This has coincided with the quarterly house rent adjustment of 1% MoM.

  • The only respite to sequential movement in inflation has come from the marginal decline in the POL product prices, where the Transport index dropped -1.8% MoM.

Going forward, quick respite can only come from food inflation but there are challenges. Increasing wheat prices, emanating from supply side constraints, are being exacerbated by costly wheat imports. Simultaneously, the continuing impact of floods continues to take away from the recent appreciation of PKR and administrative measures in mitigating inflationary pressures.