Consumer Price Inflation Likely Accelerated To A Level
According to a group of analysts, consumer price inflation likely accelerated to a level not seen in over a decade in June as a result of skyrocketing food and energy costs as well as currency depreciation. This confirms expectations that the central bank will increase its benchmark interest rate for the sixth time in a row next month.
According to analysts, consumer price index (CPI)-based inflation will increase from 13.8 percent in May to a range between 18.1 and 19.5% in June. The reading would be the highest since 2009.
Recent Changes In Fuel & Other Commodity Costs
Based on recent changes in fuel and other commodity costs, they predicted that the June CPI will increase by approximately 20%. They also stated that “the current scenario has been compared with the 2008 situation following the global financial crisis.”
Since the latter week of May, the government has cut unpaid gasoline subsidies twice in an effort to reduce the fiscal deficit and secure an IMF bailout program. It boosted the cost of fuel products by Rs. 60 per liter and raised electricity rates as well. By announcing price increases of more than Rs84/liter (56 percent) for gasoline and Rs119/liter (82 percent) for HSD in just under 4 weeks, the government has so far transferred the cost of subsidies to the general public.
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SBP Lifted The Policy Rate By A Total Of 675 Basis Points
The SBP lifted the policy rate by a total of 675 basis points in 2018 and 400 basis points so far in 2022. After the policy rate was increased by 500 basis points in a calendar year in 2008, this was the greatest rate increase since then.
According to Topline Securities analyst Umair Naseer, the country would see an extended period of over 15% inflation, with a peak of 21% in August 2022.
CPI Inflation For June 2022
According to our projections, CPI inflation for June 2022 is anticipated to stay between 18.5 percent and 19.5 percent on a year-over-year basis (3.9 percent and 4.8 percent on a month-over-month basis).
In contrast to Pakistan’s long-term average inflation rate of 8%, Naseer predicted that in the fiscal year 2023, average inflation will likely be between 15.5 percent and 16.5 percent. He anticipates the CPI for FY24 to be 10%.
Base Electricity Tariff Increasing By Rs 7.9/unit
The main presumptions used in these projections were the base electricity tariff increasing by Rs 7.9/unit, or 49%, in July 2022, the gas tariff increasing by 49% in July 2022, the price of Arab light oil is assumed to be $100/bbl in FY23 and $87/bbl in FY24, and a 5% annual devaluation in FY23 and FY24.
According to Naseer, “the current situation of rising CPI trend is also somewhat similar to what was experienced during 2010 where inflation lingered at approximately 15 percent for four straight months from September 2010 to December 2010 with average FY11 inflation clocking in at 14 percent.”