Macro Analysis /

Pakistan Inflation: CPI jumps to 14.6% in January

    Intermarket Securities
    3 February 2020

    National CPI in January 2020 has clocked in at 14.6% compared to 12.6% in December 2019 (up 2.0% mom), which is a sharp deviation from the 1HFY20 average of 11.1%. While Urban CPI has been recorded at 13.4%, Rural CPI has jumped to an alarming 16.3%. Note that further gas tariff increases (the Petroleum Ministry has proposed a 15-20% increase) have yet to come through. 

    Core inflation (urban), on the other hand, has increased modestly – by 7.9% in January (7.5% in December) – remaining in line with the 8% average of the previous six months. However, rural core inflation has risen by 9.0%.

    The key reasons for the large spike in the National CPI are (i) Food inflation of 24% yoy (78% yoy jump in Perishable food items) and (ii) Transport index, up 19% yoy. Food prices have overshot due to supply disruptions in the wheat crop and other major food items, exacerbating the effect of still-high tomato prices. It is worth pointing out that large increases in food prices (over 20% yoy) have been seen in several major food items. Hence, containing food inflation hereon will be a more complex task for the government than it was earlier, in our view. This underscores the importance of the government’s recent decision to import food items such as wheat and sugar.